Card technology makes you spend more

How much cash do you have in your wallet right now?

The Reserve Bank of Australia reckons that you have about $55 and you probably don’t top it up on  a weekly basis. As a share of all our payments, our use of cash has fallen from 69 per cent in 2007 to just 47 in 2013.

I don’t know whether to be excited about technology or fearful.

That sounds a bit dramatic but it’s kind of one way or the other. I don’t know if there is an in between. And I don’t want to sound like an old fuddy duddy either, as this is progress… right?

What I do know for sure though, is I want to have clarity about my money and I want to feel confident about my financial position.

With all of the things on our plate every day – taking care of grandkids, working, entertaining, family time, self time, managing the budget (my head hurts because there is so much more!) – I believe this has become a convenience that we are paying the price for.

I’m sure as we were moving from horse and cart to a car people had the same kind of thoughts. As we went from black and white TV to colour TV and then candlestick telephones to smartphones I’m sure there were people for and against this kind of progress. But now all of that is accepted and there is no turning back.

We used to get paid colourful notes in bright orange pay packets and now you don’t get paid if you don’t have a bank account.

Don’t get me wrong though. I love the convenience of the internet and paying bills online, using my card when I don’t have enough cash on me … and there is problem number one.

I know that I spend more when I use my card than when I use cash and that annoys me because I want all of my spending to be purposeful and not wasteful.

Dun & Bradstreet did a study about using cash versus using debit cards and they found that people spent an extra 12-18 per cent more than intended. If our average weekly spend is $1,000, that’s an extra $120-$180 per week!

I’ve got a little story for you …

There was a time early on in my marriage where we were starting a new business, renovating a house and expecting our first child. (I know right? Something about those years of being 20 where we think we can do it all!)

Weeks would go by in a blur and money would come in and out but I did not seem to know exactly what was going out. I would use money from one account and promise myself to sort it out when I got home, but that never happened.

Finally I got to that place, you know, sick and tired of being sick and tired about it and I took drastic action. I remembered back to when I was paid in cash (pretty coloured notes in yellow envelopes, remember that?!) and how great I was at managing my budget.

So with that, I began to transfer back to a cash economy within our household.

I kept all of our ‘bills’ money in an account for electronic transfers but I withdrew cash to cover our variable expenses like groceries, entertainment, transport, household, pets

I also went back to separating this money into envelopes so each expense had an allocated amount. This didn’t last long and I ended up creating my own wallet, the Personal Spending Organiser.

Every single week I had money left over when using cash. This was not the case when using a debit card.

And it makes sense: if you have a $50 note and something is $55, you don’t buy it. But if you have a debit card you’ll say something to yourself like, ‘it’s only $5’ or ‘I’ll spend less on take-away this week’, or worse still … you are so unconscious you say nothing!

Here is another study that was done in 2008 which also makes so much sense. I know that it’s always harder for me to physically part with a $50 note than a $50 balance. The invisibility of the money on the card makes me detached from the value.

Journal of Experimental Psychology: Applied contains research into the effect of payment type on consumer behaviour:

The conclusion that cash discourages spending, and credit or gift cards encourage it, arises from four studies that examined two factors in purchasing behavior: when consumers part with their money (cash versus credit) and the form of payment (cash, cash-like scrip, gift certificate or credit card). The results build on growing evidence that, as the authors [Priya Raghubir and Joydeep Srivastava] wrote, “The more transparent the payment outflow, the greater the aversion to spending, or higher the ‘pain of paying.’” Cash is viewed as the most transparent form of payment.

It does require extra effort to maintain a cash economy. I keep reminding myself that I would much prefer that $120-$180 per week in my savings account and continuing to create financial peace and freedom.

So how about it? Can you use cash and save? What do you think about moving to contactless purchasing? Do you love it or loathe it?