More holiday shoppers may go cash only, no credit cards

By Sandra Block and Jayne O'Donnell, USA TODAY
The percentage of consumers who will pay for holiday gifts with cash or debit cards instead of credit cards is expected to rise this year, a trend that could further depress holiday sales.
About 71% of consumers plan to use cash or debit cards as their primary payment method when buying holiday gifts this year, the highest level since 2005, according to a National Retail Federation survey scheduled for release today. Another survey, by San Antonio-based financial services firm USAA, found that two-thirds of consumers plan to use cash more often for holiday gifts this year than in 2008.
A shift away from credit cards could make what is expected to be a difficult holiday season even more challenging for retailers. Store clerks have long found that it's easier to persuade people who are using credit cards instead of cash to spend more than they were intending, says NRF spokeswoman Ellen Davis.
Not only that, but when consumers use credit cards to shop, "they're more likely to buy in the first place," says James Roberts, professor of marketing at Baylor University in Waco, Texas.
Consumers are more frugal when they use cash, because they're acutely aware of how much money they're pulling out of their wallets, says Sue Fogel, chairwoman of marketing at DePaul University in Chicago. With credit cards, she says, "it doesn't seem quite as real." Some research has suggested that simply putting a credit card logo in a consumer's peripheral vision will cause the individual to spend more, Fogel says.
Debit cards fall somewhere between cash and credit cards, says Robert Frank, professor of economics at Cornell University. Paying with a debit card "isn't quite as palpable and vivid" as using cash, he says, but it does have an immediate impact on the amount of money a consumer has left to spend.
Monica Farmer of Winchester, Ky., says her family will be most likely sticking to the debit card this holiday season.
"If I use a charge card, I estimate that I spend at least 50% more than I would using cash," says Farmer. And that can get costly, because she typically takes two months to pay off her balances.
The NRF survey found that 28.3% of consumers plan to use credit cards most often when buying holiday gifts this year, down from 31.5% last year. In 2007, nearly a third of consumers used credit cards for such purchases.
The shift away from credit cards isn't all bad, Davis says. "If people are relying less on credit for holiday purchases this year, retailers hope they will be in a better position to spend for the future."