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

Authors

  • Noah MacDonald Department of Economics, Georgia College & State University
  • Brent Evans Department of Economics, Georgia College & State University

DOI:

https://doi.org/10.61190/fsr.v28i3.3428

Keywords:

Churning, Retirement planning, Cash back, Personal finance, Credit card

Abstract

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.

Downloads

Published

2020-09-30

How to Cite

MacDonald, N., & Evans, B. (2020). A theoretical examination of cash-back credit cards and their effect on consumer spending. Financial Services Review, 28(3), 222–242. https://doi.org/10.61190/fsr.v28i3.3428

Issue

Vol. 28 No. 3 (2020): Fall 2020

Section

New Original Submission

License

Copyright (c) 2020 Academy of Financial Services

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.