A theoretical examination of cash-back credit cards and their effect on consumer spending

The role of cash-back credit cards in personal financial strategies is highly debated. For example, Dave Ramsey (Ramsey, 2019) urges consumers to avoid even the most lucrative cash-back cards, while others argue that these cards offer significant savings. Herein, we construct models to analyze the u...

Full description

Saved in:

Bibliographic Details
Published in:	Financial services review (Greenwich, Conn.) Conn.), 2020-10, Vol.28 (3), p.223-242
Main Authors:	MacDonald, Noah, Evans, Brent
Format:	Article
Language:	eng
Subjects:	Borrowing Consumer credit Consumer spending Consumers Consumption Credit card industry Credit cards Demand curves Incentives Loyalty programs Personal finance Purchasing Travel
Online Access:	Get full text
Tags:	Add Tag No Tags, Be the first to tag this record!

Description
Summary:	The role of cash-back credit cards in personal financial strategies is highly debated. For example, Dave Ramsey (Ramsey, 2019) urges consumers to avoid even the most lucrative cash-back cards, while others argue that these cards offer significant savings. Herein, we construct models to analyze the use of cash-back cards by rational consumers, demonstrating that cash-back cards increase spending (and, thus, reduce savings) for some consumers. While prior research focuses on behavioral issues related to credit cards, our research is the first to show that some consumers will rationally increase spending when using a cash-back credit card in lieu of cash. © 2020 Academy of Financial Services. All rights reserved.
ISSN:	1057-0810 1873-5673