Why We Value Purchases More When We Pay in Cash

Credit is convenient, but paying in cash has a subtle effect on your thinking, which you can use to your advantage. A recent study found that paying in cash actually makes us value our purchases more.

After learning that she was more reliant on morning coffee when she paid in cash, Avni M. Shah , assistant professor of marketing at the University of Toronto at Scarborough, decided to put her experience to the test.

In a series of experiments, Shah and her fellow researchers examined the effect of paying on credit versus cash. In one study, some subjects used credit cards to pay for $ 2 mugs, while others used cash to pay for the same item. Researchers tried to buy back the mugs by asking the mug owners for a price. The researchers reported that consumers who paid in cash asked for an average price of $ 3 higher than those who used credit cards.

In a separate study, they asked subjects to donate to charity using either $ 5 in cash or a $ 5 coupon. When asked how connected they are to charity, those who paid in cash responded that they felt more connected. The study concluded:

The form of payment clearly affects the subsequent value of the purchase to the consumer, even if the objective monetary value remains constant. The use of cash or checks seems to increase the psychological “pain” or sacrifice of the action and create a greater likeness to the product or brand.

This is an effect you’ve probably experienced yourself, but research supports the idea that we tend to value things more when we pay cash for them. If you have a habit of wasting money frivolously, you can use this to your advantage. A while ago I experimented with a month of cash only, and personally I felt more mindful of my spending as well. The tangibility of the money made it harder to shell out, so I appreciated a little more what I got in return. Money management has a lot to do with thinking, so it’s worth learning how your habits work. For more details, check out the full study at the link below.

“Paper or Plastic?”: Payment Method Affects Post-Transactional Communication | Consumer Research Journal via The New York Times

Photo by Andy .


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