Is using credit cards like playing with Monopoly money?

You buy a big-screen TV or take that dream Caribbean cruise, put it all on credit cards and don't really feel the pain of spending the money -- at least not at the time of purchase.

Buying goods and services with credit cards, debit cards, gift cards and gift certificates is a lot like the popular Parker Brothers Monopoly board game, according to the authors of a new study on how the payment method used to make purchases affects spending behavior.

Play money
"When you are paying by credit card, there isn't a wall against exactly how much you are carrying in your wallet. It all just seems so easy," says Priya Raghubir, a New York University business school professor and co-author of "Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior."

"It's used like play money. It's not taken seriously," Raghubir says in a telephone interview.

The study, published in this month's issue of the "Journal of Experimental Psychology," examines the following question: "Do consumers spend differently when using one payment method relative to another mode? For example, do consumers spend more when they receive $50 in the form of a gift card than in the form of cash? If indeed they do, then why?"

Past studies and the credit card industry have asserted that we tend to spend more when we use credit cards. Raghubir and her co-author, University of Maryland business professor Joydeep Srivastava, take past research a step further and provide a possible explanation for the spending difference.

Pain in the wallet?
"We argue that the more transparent the payment outflow, the greater the aversion to spending or higher the 'pain of paying'," according to the study. Credit cards "may not feel or appear as real as legal tender thereby reducing the salience of parting with real money... using a different payment form (other than legal tender) may seem like play money or 'monopoly money,' making it easier to spend," they write in the study.

Cash is the most painful method of spending and the most transparent, the authors say. In other words, we can see the face value of the bills as we count them out at the cash register and may vividly associate that with how hard we worked to earn them. Credit cards, on the other hand, have no value printed on them.

"There is nothing written on it," says Raghubir. "There is no face value cue about what that card is worth. The credit limit is really not salient on that card."

She adds: "That leads you to spending more, which could lead you to a debt spiral."

Asked whether the fact that interest rates are increasing for many credit card users might make the cards more "painful" to use and affect spending behavior, Raghubir says interest is not likely to matter. "My hypothesis is that it would almost go unnoticed. Before it began to hurt you as a real expense, it would require consumers to focus more on their interest expense."