Credit card companies are smart

The Economist reports that credit card companies are a whole lot smarter than I gave them credit for:

Since minimum payments on credit-card statements are usually small amounts, Mr Stewart wondered whether seeing an actual amount might make people pay less than they would otherwise have done. That is exactly what he found.
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Mr Stewart presented 413 people with mock credit-card bills of £435.76 (about $650) that were identical—except that only half mentioned a minimum payment of £5.42. Participants were asked how much they would pay.

Among those inclined to pay the bill in full, the presence of the minimum payment hardly made any difference. However, those who wanted to pay just part of it handed over 43% less on average when presented with a minimum payment. In the real world, this would roughly double interest charges.

By anchoring people’s choice at a low value the companies ensure people pay less than they would if they anchored from the full amount due. They thus end up paying more in interest and generating more revenue for the company. So next time you look at your CC bill, maybe look at the total bill and not the minimum to save yourself a few pennies.

ht: Freakonomics