When you go out shopping and you proceed to pay a bill, do you immediately take out the cash you have on hand or pay with a credit card? This may seem like a silly question, but there is psychological evidence that suggests many individuals become emotionally attached to their cash.
According to Live Science, “A four-part study found what many financial planners already knew: People spend more money when using credit cards compared to cash purchases. People also spend less when they look at their expenses in detail, the researchers found.”
Before we pass on the actual results of the study that was performed by New York University and was written in the Journal of Experimental Psychology’s September issue, let’s explore for a moment the psychology of money.
Here is an example a woman related regarding cash versus credit cards. “After my doctor’s appointment, I took my prescriptions to my pharmacist. Instead of waiting there, I decided to buy some birthday cards at a nearby card store. The total cost of cards and gifts came to around $57.00. I did have the cash, but instead I decided to pay with a credit card. I could say that I was holding onto the cash to pay for the prescriptions, but when I went to pick them up – I used my credit card again.”
According to the Journal of Experimental Psychology, “Consumers simply feel the pain of paying more when they part with cash.” The following studies are anecdotal evidence of this cash versus credit card phenomenon:
In one study, 114 participants estimated how much they would spend using cash versus using credit for a well-described restaurant meal. “People are willing to spend (or pay) more when they use a credit card than when using cash,” the authors wrote.
Then 28 participants were given a detailed shopping list to work with. In a questionnaire format, they spent more when they used a $50 gift certificate instead of $50 cash.
Finally, 130 participants were given $1 cash or a $1 gift certificate to buy candy. At first, they were more willing to spend the gift certificate than the cash. But after holding the gift certificate in their wallets for an hour, they became less likely to spend it, indicating that the certificates came to seem more like real money.
Thus, the studies suggest that “less transparent payment forms (such as credit cards) tend to be treated like (play) money and are hence more easily spent (or parted with),” the researchers argue.
This fascinating study suggests that we are more emotionally attached to our cash when given the choice of paying with cash or with a credit card. Perhaps it is the burden of not knowing what will happen with the economy.
Here is an analogy that is akin to the researchers’ findings: When individuals play the game of Monopoly, one player may tend to spend like crazy buying properties, houses, and hotels while another player may reserve the money for those properties that will yield the highest return. It’s something to think about!
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