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Trying to save money? Pay in cash

Cash is in crisis. In Australia, it’s now only used for 16% of in-person transactions, down from about 70% in 2007.

The situation is so dire that Independent Federal MP Andrew Gee has introduced a private member’s bill that would force businesses to accept cash or else face big fines.

The reality is that over the past decade, technological advancements have utterly transformed the way we pay for goods and services. Phones and smartwatches can now easily be used to pay by card, and buy-now-pay-later schemes and cryptocurrency payments offer further alternatives.

The shift away from cash only accelerated throughout the COVID pandemic, as health experts recommended avoiding using it for hygiene reasons.

Despite these big changes in how we spend money, Australians have perhaps been more focused on how much amid a stubborn cost-of-living crisis.

In light of this, our research team wanted to investigate how our choice of payment method can interact with our actual spending habits. Our latest research offers a simple solution for anyone looking to save money — carry more cash!

We pay less when we pay cash

Drawing on both academic and industry sources, our research team combined the results from more than four decades of prior research on spending behaviour and payment methods into a large dataset.

This data spanned 71 research papers, 17 countries, and more than 11,000 participants. State-of-the-art meta-analysis techniques then allowed us to collectively analyse the results from all these prior studies, and re-examine their insights.

We found that cashless payments were indeed associated with higher levels of consumer spending compared to cash transactions, something that is referred to in the literature as the “cashless effect”.

This cashless effect was consistent across all other payment methods in the data set.

Put simply, it doesn’t matter whether you use a credit card, debit card or a buy-now-pay-later service – you are likely to spend more money using cashless methods than when you pay with cash.

The pain of paying

Under the traditional economic view that consumers behave rationally, there should be no differences in spending behaviour between different payment methods – money is money after all. But the existence of the cashless effect shows that the payment methods we use do influence our spending behaviour.

The leading theory to explain this effect attributes it to differences in the “pain of paying”, a concept first coined in 1996 that describes the emotions we feel when spending money.

Importantly, our choice of payment method can influence the level of pain felt. When paying with cash, we have to physically count out notes and coins and hand them over. Humans seek to avoid losses, and paying by cash sees us physically lose a tangible object.

Conversely, nothing has to be handed over to pay cashlessly. We don’t lose anything tangible with a swipe or a tap, so it feels less painful.

Preliminary neurological evidence suggests that the “pain of paying” isn’t just an abstract metaphor, and we may feel actual psychological pain with each transaction we make. Research employing functional magnetic resonance imaging (fMRI) scans to observe brain activity in consumers has shown that paying activates brain regions related to experiencing psychological discomfort.

Picture this: You’re at a theme park, excited for a fun day. You use your smartwatch to pay for snacks, souvenirs and rides. It’s all so convenient that you don’t realise how much you’re spending until you check your account later and see that you have completely blown your budget!

This is the cashless effect in action - if nothing is physically handed over, it’s easy to lose track of how much is spent.

A great tool for budgeting – while it lasts

The cost of living crisis has made spending control front-of-mind for many people. Our meta-analysis suggests that returning to “cold hard cash” whenever possible could be one valuable tool to help.

The increased friction felt when using cash could help people better control their money, even just by providing a moment to pause and consider whether a transaction is necessary.

This could help individuals make more mindful decisions, saving money while they can in an increasingly cashless world.The Conversation

The Conversation


Lachlan Schomburgk, PhD Researcher in Marketing, University of Adelaide; Alex Belli, Senior Lecturer in Marketing, The University of Melbourne, and Arvid O. I. Hoffmann, Professor of Marketing, University of Adelaide

This article is republished from The Conversation under a Creative Commons license. Read the original article.


June 10, 2024

Pizza shop in Arnold's Creek (Melton) charged 2% extra on eftpos (debit card) for $78 transaction. I realise the business should maybe charge a small fee, but believe this amount is deliberately profiteering at the customer's expense.

Old School
June 07, 2024

Why is it that most shops/retail stores charges a surcharge when paying by non-cash? I'm sure it's extra profit for them. Compared to cash handling costs and security costs when they receive cash instead. Why don't they increase their prices instead of adding a surcharge!

June 08, 2024

Recently queried business re $231 fee charge for relative's large purchase by Dr card, said the bank's merchant fee, was horrified, hadn't let me do bank transfer for her now set up for use to show her, needs to learn how but scared, invoice was due immediately.

June 10, 2024


June 07, 2024

My wife has been espousing this for years. Where can she pick up her PhD?

June 08, 2024

Martin, did she use cash from pay packets & line up on mantlepiece for milkman, food, petrol etc as my home & to bank Mon.lunchtime deposit leftover to save for first house? If milk money vanished I'd make gulity party go to door to tell him why not paying this week the evening he collected.

June 07, 2024

I have seen especially the young ones mindlessly splashing their smartphones around with the included virtual digital wallet. Then receive an unpleasant surprise at the end of the month.
Sung to the tune of Old Macdonald had a farm.
" My young nephew had a - smartphone E. I. E. I. O.
And on that smartphone he had a digital wallet E. I. E. I. O.
With a ding ding here. A ding ding there, Here a ding ding, there a ding, ding- -
Everywhere a ding ding E. I. E. I. O. ""

June 07, 2024

Day jobs. They're important and give people's lives meaning.

Hang onto yours John. Poetry is not your strong suit. :)

Fred C.B.
June 07, 2024

This finding is true in my own experience. I think twice before making a purchase with cash, which quite often results in decline of a transaction. ?????

June 06, 2024

OK let's say you spend $100 k a yr on credit cards that charge 1.5% . That's $1500 . In surcharges you could save paying by cash . It's a no brainer

Manoj Abichandani
June 06, 2024

I convinced my wife to purchase cigarettes with cash instead of card - it works!


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