The psychology of money: Cash versus cards

Many people form emotional connections with brands or products, whether it’s a penchant for Apple electronics, a favored clothing retailer or your preferred coffee shop chain.

A number of factors influence this bond, including your previous experiences with the brand or product, the effectiveness of the company’s marketing communications, and the advice of family and friends. But did you know that how you pay for your goods and services could also affect the strength of this affinity?

Recent research has indicated that whether we pay by cash or credit may have a significant impact on how attached we become to a purchase. The University of Toronto conducted two experiments to see how differently people perceive items they’ve bought depending on the payment method used.

Emotional attachment to cash

Participants were first asked to purchase a coffee mug that had been discounted from its regular price of $6.95 down to $2. They were then asked to sell the mug back two hours later – and they were allowed to set their own price.

Interestingly, people who originally paid for the item in cash wanted almost $3 more on average than card users when selling the mug back. Avni Shah, assistant professor of marketing at the University of Toronto Scarborough and the Rotman School of Management, said individuals who paid physical money reported being “more emotionally attached” to the purchase.

“Debit and credit cards rule the marketplace, and while going cashless is convenient, that convenience may come at a price,” she explained. “Something tangible like cash will feel more painful to part with than paying by check, which will feel more painful than paying by card and so on.”

To support the findings, the researchers conducted another experiment to remove the possibility that more rational reasons were behind cash-payers charging more for their mugs. For example, this may include the effort of withdrawing money from an ATM or potential bank fees.

For the second experiment, participants were given either a $5 voucher or the equivalent in cash to donate to one of three charities.

Again, the results showed people who paid with physical money rather than the voucher claimed they were more attached to the charity they chose, as well as being less connected to the organizations they didn’t pick.

The pain of payment

These results echo previous studies that researchers have conducted into the psychological effects of paying with money.

A study¬†published in the Journal of Consumer Research in 2011 found that cash is intrinsically linked with the ‘pain’ of payment, while credit cards are more closely associated with instant gratification and a particular type of lifestyle due to the way they are advertised.

The study’s authors, Promothesh Chatterjee from the University of Kansas and Randall L Rose from the University of South Carolina, said people spend less time pondering their purchases when they pay on credit.

“The effects of credit cards go far beyond increasing consumer spending power and shifting consumption from the future to the present; fundamental product perceptions are affected as well,” they argued.

Ultimately, it appears that people do have an emotional attachment to cash that is reflected in the bond they have with purchases paid for with physical money.

What impact this will have on consumers as society moves increasingly towards cashless payment methods is difficult to predict, although with such a strong affinity to cash, this shift may take longer than expected.



Written by Andy Brown

Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years' experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

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