The Pain of Paying

Aug 2, 2017 by

$100 billsAll the pundits say we’re nearing a cash-less society. For reasons I’ve written about elsewhere, I still rely mostly on cash for purchases under ~$50, but I appreciate that I’m a dinosaur. I increasingly irritate cashiers who’ve happily abandoned long ago grasping the intricate calculations underlying “making change”—a term soon to be made technologically extinct, such as “telephone booth.” Usually the cashier is already handing me the card-reading gizmo by the time I’ve fished a couple pieces of paper (plastic, actually, in Canada) currency from my pocket. But I carry on. 🙂

Have I Saved More Because I Rely on Cash for Spending?

But what came to my attention recently is that research has shown that I might actually spend less—which means I save more, if you grasp the simple math—by relying on cash for most purchases. I’ve saved more because, research shows, we experience more “pain” when we pay with cash vs. credit card or the more modern methods.

“The Pain of Paying”

Because I’m a money nerd, I listened to a podcast of a September 2016 segment of the CBC Radio 1 show Spark called From Bartering to Bitcoin featuring neuropsychologist + money coach Dr. Moira Somers. I first heard the term “the pain of paying” from Dr. Somers, who used it as a way to rank methods of paying for a purchase. This video featuring Professor Dan Ariely of Duke University’s Fuqua School of Business explains the “pain of paying” concept (so I don’t have to try), and covers more aspects than cash vs. card:

In the Spark segment, Dr. Somers observes “there are some forms of technology that certainly assist in the mindlessness aspect of personal financial management.” Mindlessness—hmmm, that doesn’t sound good, if meeting savings goals is important to us.

Dr. Somers says that “we are much more aware of the value of money when we fork over cold hard cash, and we don’t feel quite the same about handing over debit or credit cards.” The pertinent upshot: we spend more = save less when using cards than when using cash.

Should You Rely on Cash?

Hey, I know it’s futile and probably silly to recommend to the great majority of Money Counselor readers who’ve already quit cash to reverse technological course. Not going to happen. But for cash hangers-on like me, the pain of paying is a good reason to keep hanging on.

For the rest of you: Be conscious of how much easier it is to spend when using cards, Apple Pay, or other cash-free payment methods. The ways to pay will always change, but the overarching math is everlasting: Savings = Income – Spending. The more you save, the sooner you will achieve financial freedom.

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