Why Researchers Recommend Carrying Cash Instead of Cards for Self-Control

Introduction:

Researchers from the University of Adelaide have found that consumers tend to spend more money when using cashless payment methods compared to traditional cash. The study, which analyzed 71 research papers from 17 countries, highlights the “cashless effect” and its impact on consumer spending behaviors. Lead author Lachlan Schomburgk suggests that carrying cash can act as a self-control method to prevent overspending.

The Impact of Cashless Payment Methods:

The research conducted by the University of Adelaide reveals that cashless payment methods, such as credit cards or Apple Pay, are linked to higher consumer spending. This finding is consistent with 40 years of research on the “cashless effect.” According to Schomburgk, understanding how payment methods influence spending behaviors can empower consumers to make more informed purchasing decisions.

The Benefits of Carrying Cash:

To prevent overspending, the researchers recommend that consumers carry cash instead of cards whenever possible. When using cash, individuals physically count and hand over notes and coins, making the act of spending more salient. This physical interaction with money helps individuals keep track of their spending and prevents them from losing count. Carrying cash acts as a self-control method by providing a tangible reminder of how much is being spent.

Factors Influencing the Cashless Effect:

The study also identified key factors that influence the strength of the “cashless effect.” People tend to spend more with cashless methods, especially when purchasing products that signal status, such as jewelry. Additionally, positive periods of the business cycle, like an increasing GDP growth rate, also contribute to increased spending with cashless methods. However, the researchers noted that the cashless effect has weakened over time as individuals become more familiar with non-cash payment methods.

Tipping and Donations:

Contrary to expectations, the researchers did not observe the cashless effect in the case of tipping. Cashless payments did not lead to greater tips or donations compared to cash. This suggests that traditional cash-based methods of collecting money, such as tipping jars, are just as effective as cashless point-of-sale terminals. The study’s findings indicate that people are equally likely to give tips or make donations regardless of the payment method.

The Future of Payment Behavior:

According to Schomburgk, buy-now-pay-later services and cryptocurrency payments are likely to influence payment behavior in the future. However, there is currently limited academic research on both areas. He believes that future research should focus on these emerging payment methods to gain a deeper understanding of their impact on consumer spending behaviors.

The Transition to a Cashless Society:

While the move towards a cashless society seems inevitable, Schomburgk acknowledges that it may unintentionally impact certain groups, such as individuals without bank accounts. He suggests that policymakers should communicate effectively about the potential risks of overspending with cashless methods. It is important for businesses to embrace the cashless revolution to avoid missing out on potential revenue.

Concerns about a Cashless Society:

Australia is currently one of the leaders in digital payments globally. However, some individuals have expressed concerns about the move towards a cashless society. By the end of 2022, cash usage had dropped to just 13 percent of payments, compared to 69 percent in 2007. Independent Member for Calare Andrew Gee has introduced the “Keeping Cash Transactions in Australia Bill 2024” to preserve the use of cash in the national economy. The bill proposes that businesses operating in face-to-face settings must accept cash payments for transactions under $10,000. Gee highlights that many senior Australians prefer using cash and may find online banking services stressful and confusing.

Conclusion:

The research conducted by the University of Adelaide sheds light on the “cashless effect” and its impact on consumer spending behaviors. Carrying cash can act as a self-control method to prevent overspending, as individuals physically count and hand over money, making the act of spending more noticeable. Factors such as status signaling products and positive business cycles influence the strength of the cashless effect. However, tipping and donation behaviors remain unaffected by payment methods. The transition to a cashless society is inevitable, but policymakers should consider the potential impact on underserved communities. The introduction of a bill in Australia to preserve the use of cash reflects concerns about a cashless future. Overall, understanding the influence of payment methods on spending behaviors can empower consumers to make more informed purchasing decisions.