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Strapped for Cash
Economic woes got you trying to cut back on your spending? Use cash.
Paying for items with plastic – credit cards or gift cards – encourages
consumers to spend more, according to research from Joydeep Srivastava,
associate marketing professor at the Smith School. The research also finds that
people spend less when they have to estimate expenses in detail.
Srivastava and study co-author Priya Raghubir, New York University, used four
experiments to dissect people’s buying habits using cash and cash equivalents.
In the first, they asked 114 participants to quantify how much they would pay
using various payment forms for a vividly described restaurant meal. Results
showed people were willing to pay more when they used a credit card than when
using cash. The authors attributed the difference in spending behavior to the
way cash can reinforce the pain of paying.
The second experiment asked 57 participants to estimate the cost of
Thanksgiving dinner item by item, rather than by grand total. When they
confronted the detailed reality of expenses, the cash-credit spending gap closed
and it no longer mattered what form of payment they were using, highlighting the
future pain of paying.
For the third study, 28 participants were given a shopping list and sent to
the store with $50 in a gift certificate or cash. Those with the gift
certificate spent more than those given cash.
Lastly, 130 people were given $1 cash or $1 gift certificate to buy candy. At
first, participants were more willing to use the certificate than the cash, but
after holding onto the certificate for an hour, they became less likely to use
it. This signaled that they had assimilated the value of the gift certificate
and therefore were treating it like cash. When researchers again highlighted the
difference in transparency between cash and gift certificates, people reverted
to their original behavior.
The researchers caution consumers to be wary of overspending when using
payment forms other than cash – don’t fall into the trap of treating credit and
gift cards like Monopoly money!
The study, “Monopoly Money: The Effect of Payment Coupling and Form on
Spending Behavior,” was published in the September 2008 issue of the Journal of
Experimental Psychology: Applied, published by the American Psychological
Association.
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