Why We Value Purchases More When We Pay With Cash

Why We Value Purchases More When We Pay With Cash

Credit is convenient, but paying with cash has a subtle impact on your mindset that you can use in your favour. A recent study found that paying with cash actually makes us value our purchases more.

After realising that she savoured her morning coffee more when paying with cash, Avni M. Shah, an assistant marketing professor at the University of Toronto Scarborough, decided to put her experience to the test.

Through a series of experiments, Shah and her fellow researchers studied the effect of paying with credit vs cash. In one study, they had some subjects use credit cards to pay for $US2 ($3) mugs and others use cash for the same item. Researchers tried to buy back the mugs, asking the mug owners to name a price. The researchers reported that consumers who paid with cash asked for an average price that was $US3 ($4) higher than those using credit cards.

In a separate study, they asked subjects to donate to charity using either $US5 ($7) in cash or a $US5 ($7) voucher. When asked how connected they felt to the charity, those who paid in cash reported feeling more connected. The study concluded:

The form of payment clearly influences the subsequent value of the purchase to the consumer, even when the objective monetary cost remains constant. Using cash or check seems to increase the psychological ‘pain’ or sacrifice of the act and creates more affinity with the product or brand.

It’s an effect you’ve probably experienced on your own, but research backs up the idea that we tend to value stuff more when we use cash to pay for it. If you have a habit of spending frivolously, you can use this in your favour. I experimented with a cash-only month a while back, and personally, I felt more mindful of my spending, too. The tangibility of the cash made it harder to fork over, so I appreciated what I was getting in return a bit more. Money management has a lot to do with mindset, so it’s worth learning how your habits work. For more detail, check out the full study at the link below.

“Paper or Plastic?”: How We Pay Influences Post-Transaction Connection [The Journal of Consumer Research via The New York Times]

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