A Theoretical Examination of Cash-Back Credit Cards and Their Effect on Consumer Spending

35 Pages Posted: 31 Mar 2020

See all articles by Noah MacDonald

Noah MacDonald

Georgia College & State University

Brent Evans

Georgia College & State University

Date Written: March 5, 2020

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.

Keywords: Credit Card, Personal Finance, Cash Back, Retirement Planning, Churning

JEL Classification: D11, D14, D15, G50

Suggested Citation

MacDonald, Noah and Evans, Brent, A Theoretical Examination of Cash-Back Credit Cards and Their Effect on Consumer Spending (March 5, 2020). Available at SSRN: https://ssrn.com/abstract=3549383 or http://dx.doi.org/10.2139/ssrn.3549383

Noah MacDonald

Georgia College & State University ( email )

United States

Brent Evans (Contact Author)

Georgia College & State University ( email )

Milledgeville, GA 31061-0490
United States

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