Credit Cards & Your Brain

As I sit here observing the credit crunch and overall economic instability, I'm reading a lot of columnists that describe our spiraling descent into credit hell as one of our key problems. Where once we were a nation of moderate savers, living comfortably but not in luxury, we banked a portion of our earnings and bought only what we needed.

Consumerism, however, has taken over, and as George Carlin once observed, we're running out of places for our stuff. Once we started building these U-store complexes for people to stash their excess stuff, we had sealed our fate. Do you remember when the economy faltered after 9/11? What did our President ask us to do? Shop.

Jonah Leher has a deep essay on how credit cards leverage an innate defect in our brains, which leads us to lose our reasoning ability when it comes to spending, or overspending, as the case may be.

When we buy something with cash, the purchase involves an actual loss - our wallet is literally lighter. Credit cards, however, make the transaction abstract, so that we don't really feel the downside of spending money. Brain imaging experiments suggest that paying with credit cards actually reduces activity in the insula, a brain region associated with negative feelings. As George Loewenstein, a neuroeconomist at Carnegie-Mellon says, "The nature of credit cards ensures that your brain is anaesthetized against the pain of payment." Spending money doesn't feel bad, so you spend more money.

I wonder if they did any studies around the use of debit cards, which actually do drain money from your account. Anyone know of any such studies?