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Don't get nickeled and dimed by small purchases

August 28, 2013

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Plastic is taking the place of coins at parking meters, vending machines and even self-serve car washes. You no longer have to dig for change, but how do you make sure you're not nickel-and-diming away your money with every swipe?

“More and more people are now pulling out a credit card for a $2 transaction,” says Art Markman, professor of psychology and marketing at The University of Texas at Austin and author of “Smart Thinking: Three Essential Keys to Innovate, Solve Problems and Get Things Done.”

“None of those little expenses feel like much — just a few dollars to park, then a buck and a quarter at the soda machine,” Markman says. “But you can get to the end of the month and realize you've spent an extra $200 just on incidentals.”

Here's why those small charges can get surprisingly expensive — and how to prevent them from piling up.

Paying for small stuff with plastic
It used to be that if you didn't have coins, you couldn't park on a city street, get a candy bar at work or vacuum out your car. But that's becoming less and less common due to the trend of increasing payment options. For example:

  • Parking meters: A report by the International Parking Institute, “2013 Emerging Trends in Parking,” lists demand for cashless payment as one of the top parking trends. Many cities are allowing credit or debit card payments at meters, while cities such as Pittsburgh, Houston and Miami allow drivers to pay by smartphone, the report states.
  • Vending machines: According to vending machine supplier, cashless vending is one of the Top 5 vending machine trends in 2013. Right now, about 20 percent to 25 percent of vending machines take credit cards, according to John Bruntz, CEO of the vending product and services company The Wittern Group. Fewer consumers buy items from vending machines when they don't accept cards, he says.”If the impulse strikes and you don't have change in your pocket, the [vending machine] operator is going to miss a sale,” Bruntz says.
  • Car washes: It's also becoming more common to offer the ability to pay with credit cards at self-serve car washes, and a case study at one car wash showed that consumers who paid with plastic spent 36 percent more.

It all adds up
So what's the danger of a little convenience? Research from MIT, Carnegie Mellon and Stanford shows that consumers typically spend more when using plastic than when they use cash. The tendency to spend more stems from the relative painlessness of plastic — you don't feel like you're parting with real money.

When it comes to small purchases, you may find yourself spending extra without even realizing it. For example, a shopper who has to run into a store might swipe a credit card to buy an hour of parking time when a half hour would have been plenty. In contrast, “when you had to put actual coins in the parking meter, you'd try to put in exactly the correct amount,” Markman says. That's because, when you use cash, you actually feel the pain of parting with your money.

The ability to use plastic for small purchases also can reduce impulse control, says Kit Yarrow, a consumer psychologist at Golden Gate University in San Francisco. For example, if you're a little bit hungry, you might give in more easily to the urge to buy chocolate or potato chips if the office vending machine takes credit cards.

“Before [vending machines took cards], if you didn't have the exact change, you might have just decided to skip it,” Yarrow says.

How to get a handle on your small purchases
Do you like the convenience of swiping a card for small purchases? If so, use these four tips to avoid frittering away your money:

1. Record small purchases right away. Whether you use a mobile phone app, a spreadsheet or some other method to track your spending, Markman recommends immediately recording purchases, no matter how small.

“Every time you enter an amount, you'll be reminded of what you're spending,” he says.

2. If necessary, find ways to cut back. If you track your spending and find that you're spending way too much on incidentals, consider making some changes.

“You might start taking public transportation or bringing your own snacks to work,” Yarrow says.

3. Check your accounts online. If you frequently swipe your card for small purchases, use online banking to check your credit card or bank account regularly — even daily, Yarrow recommends. This will help you to spot any fraudulent charges or errors right away and also help keep you in touch with your spending, she says.

4. Look at the totals. When you're spending a few dollars here and there, it's easy to fail to see the big picture, Markman says. So he recommends adding up your small purchases at least once a week to get totals. If you spend $3 eight times a day, you're spending almost $25 a day and just under $175 a week.

“It adds up in a hurry,” Markman says.

If you're still having trouble keeping track of where your money goes, Markman recommends going back to cash for as many purchases as possible.

“It really does help to hold something tangible,” he says.




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