Paying in Cash Really Makes You Spend Less

When we pay in cash, we tend to value products more because we feel more connected to the purchase. A recent study funded by the Consumer Financial Protection Bureau found that consumers also spend less when paying in cash, especially when they are frequently reminded.

The study involved 14,000 credit union consumers who had a revolving balance on their credit cards. They wanted to see if financial “rules of thumb” could really help these consumers lower their revolving credit card debt. They tested two rules, one is to pay cash for purchases up to $ 20, and the other is to remind customers that paying by card can add 20% to their purchase when you update your credit card balance. They sent out these reminders via email and banner ads, and even sent magnets to customers with one of two reminders:

  • “Don’t be frivolous. Use cash if it’s less than $ 20. “
  • “The loan continues to accrue. This adds about 20 percent to the total. “

The study found that when consumers were reminded to pay in cash, they had less revolving debt after six months. The researchers concluded:

Consumers who received the first rule of thumb had an average of $ 104 less revolving debt after six months; their balances were 2 percent lower than their baseline average.

This may not seem like a very large amount for a six month period, but when you are paying interest on a credit card balance that you keep renewing, it is very important. The study supports a 2012 study that found people were willing to spend twice as much money with a credit card rather than cash.

This suggests that tiny activities can add up, and a few reminders can help. To learn more about the study, follow the links below.

Evaluating the Impact of Two “Rules of Practice” for Credit Card Revolvers | City Institute via The New York Times

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