Why Paying with CASH Hurts – It’s a Good Thing!

I know most people think that money is just money.  But I can tell you that there is an enormous difference between paying for things with cash and with other forms of payment – including credit/debit cards, checks, or your phone.
If you want to save money, pay cash - here's why this is a smart thing to do!

Behavioral scientists have done probably hundreds of experiments over the years that clearly prove we have an emotional connection with actual cash that we don’t have with other forms of payment.  Here are a couple that I remember hearing about:

  • Researchers put cases of soda in college dorm fridges.  Alongside the cases of soda, they put paper plates of dollar bills.  Then they waited a week and came back to check.  The sodas – all gone.  Every last one of them.  The dollar bills – nearly all untouched.  The students viewed the pilfering of sodas as fairly benign, but they clearly recognized that taking money – even a dollar, was just a no-no, even if it was sitting there out in the open.
  • In another experiment, subjects were given an easy one-page questionnaire to fill out.  Half were paid the grand total of .12 cents in actual cash money, while the other half were given a voucher for .25 cents that they could redeem for a candy bar.  Even though the second half was paid the equivalent of twice as much money, the first group spent an average of 10% more time completing the survey.  Even though the payoff was such a ridiculously TINY amount of money, it still was recognized as being more valuable.

You can bet that we aren’t the ONLY ones who have access to this research.  Every Corporation ever invented knows this research backwards and forwards.  They plan their sales strategies to get you to use ANY non-cash form of payment because they KNOW you will spend MORE than if you pay cash.  The stinkers!  I don’t know about you, but I get a big kick out of doing the exact opposite of what Corporate America wants me to do.  I’m just contrary that way.

Retailers don't WANT you to pay with cash. You'll buy MORE with plastic! Click To Tweet

They actually had commercials a few years ago that were blatantly anti-cash.  They would show dancing water, rotating flowers, and tons of happy people moving in unison to happy music.  Then everything would come to a screeching halt whenever someone stepped up with cash in hand.  Then someone would whip out a piece of plastic and boom, all the music would start up and all was right with the world.  That was about as subtle as a ton of bricks.

Here’s WHY they don’t want you to pay with cash:

  • You are much more price-conscious when spending cash.  It’s so dang easy to just swipe that little plastic square and not think about the price.  There’s no natural stopping point with a card like there is with cash.  Plastic just feels unlimited.
  • You genuinely might not have enough cash with you.  Cash is a finite resource – when it’s gone, it’s gone.  No retailer wants to lose a $60 sale because you only have $58 in your hot little hand.
  • Cash brings you back to the good old-fashioned state of “can’t afford it”.  It just feels more “real” when you are handing over a chunk of cash vs. an electronic transaction.  Try doing this with grocery shopping once in a while.  You become VERY aware of the prices when you are facing the embarrassment of having to put items back at the register.

I used this strategy on my married son a while back.  He had a gym membership that he hadn’t been using.  It was set up on automatic payments (here’s a link to why THOSE are such a terrible idea!).  So he really didn’t care about it.

I told him to imagine going into that gym every month, reaching into his wallet to pull out a nice, crisp $20 bill and hand it over to the muscle-bound guy at the front desk.  Then thank him and just walk right back out the door.  That was the reality of it.  But he couldn’t see the PAIN until we put actual cash into the picture.  He called them up and quit the next day!

Wanna spend less money?  Switch to cash and skip the debit or credit card.  It will help you SO MUCH!

That’s why those envelope budgeting plans really work.  The ones where you put all your money for the month into different budget envelopes.  It’s a lot like Weight Watchers – you only get so many points and then you’re DONE.  No wiggle room – you spend money here, you have to take it from there.  Lawyers call that a bright white line – the clear difference between right and wrong.  And it works beautifully, just like Weight Watchers.

That’s why when I’m really broke, or when my spending is particularly out of control, I immediately switch to cash.  It’s always a big eye-opener for me and I usually get my finances back under control at that point.  How often do you go on a strict cash basis?  Probably not often enough…

PS:  Tonight we learned the flip side of paying with cash.  You can LOSE it 🙁

I gave my High School-age son a $50 bill to pay for his back-to-school supplies.  He came up to me with that look on his face – you know the one.  The “something really bad” look.  Sure enough, it had dropped out of his hoody pocket. Kids!  Fortunately, Target shoppers are apparently very unobservant, because he ran back and found it on the floor by where he had been shopping – whew!

If you want to learn even more about budgeting techniques that WORK, check out this Ebook by my brilliant friend Charissa.  She has even more awesome strategies to help you manage your money.  Click HERE for more info.

Budgeting Made Easy


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Comments

  1. This is a very good post. It’s definitely something we need to keep in mind. Thank you for sharing!

  2. I actually went overboard last month with the credit card (paying for EVERYTHING–groceries, phone, toiletries, you name it) and received a shocking bill in the mail. Lesson learned. I am going to attempt to carry around more of the green stuff in my wallet since I definitely spend less when I’m forking over my own hard-earned dollars 🙂 Thanks for this!

  3. So this is pretty interesting. I definitely feel that spending cash feels “real” to me.. you are so right! Those studies are so interesting!! On the flip side, when I pay with cash, I usually don’t track where i’ve spent the money as well as when I pay with a credit card. Hmmmmmm….

  4. I mostly use cash and it definitely makes you more conscious of what you’re spending. You can actually see your funds decreasing and you start thinking more in terms of needs instead of wants.

  5. I have a feeling I need to start doing this now! I know I feel more against spending a lot of money when I have cash in my hand- but I rarely carry cash anymore. It is so easy to just pay with a credit card!

  6. I paid with (mostly) cash for 6 months when we were first married. I even had the envelopes! :)It was a great experience and set good spending habits!

  7. This is so true — we pay cash as often as possible, and we’re much more conscious of the amount spent!

Trackbacks

  1. […] lot more than just whipping out a debit (or credit) card.  Here’s an article I wrote on why paying with cash hurts – and it […]

  2. […] I think putting your credit cards in a time-out is a very sensible thing to do.  I know when I catch myself going overboard, the first thing I do is switch to cash-only and it turns things right around for me.  Spending actual paper money is so much more “real” than handing over a piece of plastic – even a debit card.  See my related article Why Paying with Cash Hurts – It’s a Good Thing! […]

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