By Jason Bryce
Do people spend less when using cash rather than credit/debit cards or mobile phone payments?
The answer to this question is definitely yes.
But how much less? Does it make a big difference? Or, to put it another way, how much more do people spend when using a card rather than cash? The answer is consumers can spend twice as much when using a card to pay when compared with people who use cash. So yeah that's a big difference.
That’s right, you could save half of your regular spending budget just by changing how you pay from card to cash.
You may have heard that people tend to spend more when paying with cashless methods like a credit card, debit card or mobile phone.
But you might be surprised how much more people spend when the physical feeling of money leaving your hands is removed from the transaction.
And people spend better as well. What does that mean? It means they are more careful about what they spend their money on. Less unhealthy snacks, less sugary soft drinks and less packaged snacks.
Financial expert Paula Pant from TheBalance.com says there’s something powerful about handing over cash.
“It is more painful to physically hand over cash than it is to swipe your card.”
“It is much more impactful than checking your spending via budgeting software or manually tracking it in a spreadsheet.”
A 2001 study They found shoppers spend up to twice as much when using their credit card to pay compared to when they use cash.
In one experiment, researchers Drazen Prelec and Duncan Simester from MIT offered participants tickets to a popular basketball game. The people who were told they could pay with a credit card were willing to pay 100% more than those who had to pay with cash. So people using a credit card could suddenly afford or were willing to pay double those limited to paying with cash.
What about just ordinary spending on everyday products. Like grocery shopping? Well consumers are not just more likely to spend more, but they are more likely to spend more on unnecessary, unhealthy options when using a credit card, according to a large UK study.
“Consumers are more likely to buy unhealthy food products when they pay by credit card than when they pay in cash,” reported Manoj Thomas, Kalpesh Kaushik Desai and Satheeshkumar Seenivasan in Oxford University’s Journal of Consumer Research back in 2010.
People buying food in McDonald’s (USA) spend, on average, about $7 (2004) when using a credit card but just $4.50when paying with cash.
A debit card is linked directly to a bank account and draws funds from the account immediately to pay for the purchases being made. A debit card, unlike a credit card, does not delay the payment or provide credit to fund the purchase. So, a debit card is more like paying with cash. Does paying with a debit card influence buying behaviour in the same way a credit card does?
The Thomas research from the UK supports the idea that debit cards also influence buying behaviour and encourage unnecessary spending.
“Analysis of actual shopping behavior of 1,000 households over a period of 6 months revealed that shopping baskets have a larger proportion of food items rated as impulsive and unhealthy when shoppers use credit or debit cards to pay for the purchases.”
Another big study from the USA, by the Federal Reserve Bank of Boston in 2016, found the average value of a cash transaction was $22. The average value of a non-cash transaction is $112.
Contactless payments (like payWave, ApplePay, GooglePay and Tap and Go) have decreased the pain of payment even further. Shoppers simply wave their phone near a payment terminal.
American researcher Dr Utpal Dholakia says these payment methods “make spending money even more painless [than even card payments], they’re encouraging shoppers to buy impulsively, over-spend, and purchase unhealthy products even more.”
Paula Pant says a cash-only budget can benefit impulse shoppers.
“Having a limited amount of money forces you to question all of your purchases.”
“A cash-only budget is a great way to shed old spending habits and replace them with habits that lead toward a secure financial future.”
Have a go and find out for yourself. I tried going cash-only and found myself spending less and spending better.
Today, the 12th of January 2022, new data has been released by the Reserve Bank of Australia showing cash withdrawals are trending UP in Australia.
COVID-19 led to an immediate scare and fear of virus transmission via surfaces.