The decision between debit and credit
finance charges, float, and fear
DOI:
https://doi.org/10.61190/fsr.v14i1.4811Keywords:
Methods of payments, Banking services, Debit cards, Credit cardsAbstract
We develop a simple model of a consumer's choice betweendebit and credit and show that consumers are always better off using credit than debit when both types of cards are available for a purchase. The result is tested and the persistence of debit cards in the marketplace is examined using data from the 1998 Survey of Consumer Finances. Emperical evidence is presented suggesting that the persistence of debit cards in the marketplace is because of (1) the fact that even households that use credit cards without borrowing do not view credit as a substitute for debit and (2) consumers' fear of credit.
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