Pi Attitude Zone: Material Status

When The Minimum Is Also The Maximum

Credit card companies, faced with the problem of  people maxing out their cards, have been falling prey to an unexpected variant of the numbers game.  And it’s their own fault, did they but know it.

Monthly credit card statements tell debtors what the minimum payment required of them will be for the month in question. A study by Neil Stewart, a psychologist at Britain’s Warwick University, discovered that the mere fact of mentioning that “minimum payment number”, and presenting it as a payment option, diminishes the likelihood of card-holders paying anything more than that exact amount.

Worse, people who would naturally be disposed to pay more than the “minimum due” amount seem to change their minds.  By a significant margin they shoot low, and only cough up the minimum requirement on their statement.

On that basis, Pi reckons that what gets maxed out is likely to stay maxed out.  Human nature being what it is, there is a strong temptation on the part of credit card debtors to “let the big number ride”.

The flipside of this is that, by the time they have finally paid down their debt, they will have paid their credit supplier an awful lot more money than they otherwise would have done.

Maybe showing the “minimum due” number is a shrewd move after all.

Zone: Material Status Country: Europe Product – Financial