Who Gains and Who Loses from Credit Card Payments?

This new Federal Reserve study is a fascinating look at credit card utilization across income brackets. It’s showing up all over the place: NY Times, Wall St. Journal, etc.

It’s also an incredible distortion. There are a number of variables for which it fails to account. The most egregious were pointed out by Matthew White a WSJ commenter, “Credit cards allows merchants to do higher volume of sales, which then increases economies of scale, thus making the net affect of credit card use lower prices for all consumers. In addition credit cards reduce transaction error and transaction time, further making it more efficient for a merchant to sell its goods.”

However, my favorite quote from the WSJ comment section was this from Dale Evans, “In another report it was revealed that customers that use the restroom at the store benefit at the expense of those who use the restroom at their home. Even more cutting edge research shows that customers that ask lots of questions of the staff at stores increase costs for those who just want to walk in, buy the merchandice and leave. More relavent is the study showing that research by the Fed on how to slice and dice the overhead of companies to validate government control both increases the little people‚Äôs taxes and increases the cost structure of our entire economy.” Now that’s funny.

For me this is an even greater call for expanded personal finance teaching in our schools. It’s also a call for some research that does not speak with such a political agenda. By framing the ‘story’ of their research as they do and calling for policy change, Scott Schuh, Oz Shy, and Joanna Stavins give the impression that the poor have no control over their destinies and must be protected from the evil rich credit card users.

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