According to recent studies, using a credit or debit card instead of cash results in more spending and more purchases. Australia is rapidly moving toward a cashless society; according to some experts, we won’t even need cash by the end of the decade. While using a card to make payments can be safer and more convenient for some, forgoing cash could have unanticipated financial consequences.
More than 40 years of data have been analyzed by researchers to determine how your payment method choice affects your purchasing patterns. Their verdict? Pay using cash if you’re attempting to save money.
Alex Belli, a senior lecturer in marketing at the University of Melbourne and the author of the report, told Yahoo Finance that this was due to a 1970s-era phenomena known as the “cashless effect.” The term “cashless effect” refers to the tendency for consumers to spend more money and purchase more goods when using cashless payment methods (such as credit cards or buy-now-pay-late (BNPL) schemes) as opposed to cash.
So why do cashless payments cause us to spend more money? The dominant explanation connects it to the feelings we experience when we spend money—the “pain of paying.”
“We often experience both enjoyment and suffering when we make decisions and purchases related to consumption. According to Belli, you may experience pain if you are unsure of your ability to justify a purchase you made or if you feel bad about purchasing a particular item.
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