Lashing Your Credit Card to the Mast

In the final chapter of my 2008 book Going Broke: Why Americans Can’t Hold On To Their Money, I gave a number of suggestions for staying out of debt. Some of them were tips for individual consumers, but others were government or business policy changes that would help consumers achieve greater self control and be more thrifty. One of these suggestions was to harness modern technology to help credit card users from getting into trouble. Drawing upon ideas of several other psychologists and economists, I proposed that consumers be allowed to voluntarily program credit cards to only work on certain days of the week or times of day. Certain purchases would always be allowed (e.g., medical facilities and gas stations), but other purchases would have to be put off to designated shopping days and times, thereby diminishing the likelihood of impulsive spending.

Now, MasterCard and Citigroup will for the first time introduce a similar program called inControl. In a New York Times article entitled “Your Card Has Been Declined, Just as You Wanted,” Ron Lieber writes about a program that is far more flexible and potentially valuable than the one I proposed in Going Broke. Cardholders will be able to set a monthly budget for restaurant dining, and after that budget has been exceeded, further purchases will be declined. Consumers could also simply set a figure for their total monthly disposable income and have the card shut off when that number has been met. Of course, the consumer can call the bank to have the limit removed, and there is no obstacle to going to an ATM to get cash from your credit card. But this kind of voluntary self-control device has the potential to help many people stay within their budgets.

Lieber asks the obvious question:

Still, this is the sort of service that makes you slap your forehead and wonder why it didn’t exist before. It has the potential to solve the core problem with budgeting: it’s easy to make a spreadsheet and track what you spend, but it’s awfully hard to stick to the plan.

Of course, the unstated answer to Lieber’s question is that this program was not available before because consumers’ struggles with self-control and budgeting reaped enormous profits for the banks. As Lieber points out, Citigroup and other banking institutions are trying to boost their reputations in the wake of the financial meltdown, and consumer-friendly credit card programs are thought to be particularly attractive to banks at this time.

There is also good evidence that, given a chance, many consumers will make banking decisions that improve their self-control and make them more thrifty. Like Ulysses, who had his men tie him to the mast of his ship so that he could hear the sirens’ songs without being destroyed by them, many consumers will act to limit their choices in order to make it easier to be good.

For example, new Federal Reserve regulations implemented by the Obama administration that go into effect today forbid banks from automatically enrolling customers in overdraft protection programs that charge $35 or more for each overdraft. So banks are now forced to offer accounts without overdraft protection and must ask customers to opt-in: to choose to have no protection or to enroll in some kind of overdraft protection program. Interestingly, CNN is reporting “many customers are choosing to risk having their card declined rather than face a $35 overdraft fee.” This is a good trend which suggests that MasterCard’s inControl program will be embraced by many cardholders. Many consumers are willing to put voluntary limits on their spending, and finally, the banks are beginning to provide programs that have the potential to help cardholders achieve financial stability.