Threats to Self-Worth Spur Credit Card Use

New psychological research finds credit cards make people more likely to bolster their fragile egos by purchasing luxury items.

As a society and as individuals, we’re still feeling the effect of the credit-fueled consumption binge of the past decade. While the dubiousness of digging ourselves into debt is now obvious, it’s not clear what drove us to make so many foolish-in-retrospect choices.

Newly published research suggests part of the answer can be found in a deep-seated desire to prop up one’s threatened feelings of self-worth.

Nathan Pettit of Cornell University and Niro Sivanathan of the London Business School report people whose feelings of self-value are endangered are more likely to purchase ego-boosting luxury items — but only if they have access to credit. Having the option of plunking down plastic minimizes “the psychological cost of payment,” making the transaction even more tempting.

Writing in the journal Social Psychology and Personality Science, the researchers contend the combination of “self-threat, product status and payment method creates a perfect storm” — one from which we're still mopping up.

Pettit and Sivanthan describe two experiments that provide evidence for their thesis. In one of them, 150 students were asked to write a short essay about either a pair of exclusive designer jeans (which put them in a high-status frame of mind) or a pair of normal, everyday jeans. They were then randomly informed that, based on the results of a test, their spatial reasoning and logical thinking abilities were either above or below normal.

Finally, the participants were asked whether they would purchase the jeans they described and how much they would pay for them. Half were told they’d be paying by credit card, while the others were informed they’d have to pay by cash.

“When credit was made available, participants receiving self-threatening negative feedback were both more likely to purchase high-status goods, and willing to pay a higher price for these goods than non-threatened individuals,” the researchers report. “In contrast, when cash/savings was the only option, participants receiving self-threatening negative feedback were no more willing to purchase high-status goods, and paid no more for them than non-threatened participants.”

This indicates that “When individuals are under self-threat, and therefore seeking to repair their wounded egos, they increase their spending on compensatory high-status goods only when the psychological cost of payment can be minimized — i.e., paying with credit.” The “psychologically comforting embrace of credit” is a key part of the equation: Without it, the cost of bolstering one’s ego becomes obvious, and the allure of doing so is negated.

While these experiments measured laboratory responses rather than real-world behavior, Pettit and Sivanathan are currently collecting data comparing consumer spending patterns with large-scale threats, such as terrorism alerts and flu outbreaks.

Noting that many variables influence shopping behavior, the researchers are not ready at this point to suggest specific policy proposals. But they hope their insights will contribute to “the development of regulatory lending policies aimed at promoting healthy consumer behavior.”

Their study suggests low self-esteem and easy credit can be a very costly mix. Ironically, your MasterCard may make you less of a master over your own imprudent impulses.