True cost of ‘pain-free’ payments
Cash or card – the way you spend adds up and says a lot about you.
Research has revealed that while cashless payments are convenient, they come at a price.
While it might seem like there’s little distinction between paying for your groceries with your smart watch or a crumpled handful of notes, University of Adelaide researchers have found a significant difference.
The study reveals that payment methods affect our spending behaviour.
It doesn’t matter whether you use a credit card, a debit card, a buy-now-pay-later service, or a mobile phone, you are likely to spend more when using cashless payment methods compared to using cash.
These findings are significant because of the rapid uptake of cashless payment options. In 2007 in Australia, 70% of transactions were reportedly conducted with cash. Now, that figure has plunged to 16%.
National Seniors Australia (NSA) is campaigning for a cash mandate, to ensure Australians continue to have access to cash as part of the wider payment system. More on that later.
The researchers analysed studies on payment methods and spending behaviour from around the world, drawing on 71 research papers from 17 countries and data from more than 11,000 participants.
They believe the change in behaviour when going cashless can be attributed to a phenomenon known as “the pain of paying”.
“When paying with cash, consumers must physically count out notes and then hand them over at the cashier. Given that humans are motivated to avoid losses, and paying with cash involves a physical loss, this is a painful process,” researcher, Lachlan Schomburgk, said.
However, the studies also found exceptions to the rule. Payment method doesn’t influence spending behaviour for tips and donations.
Mr Schomburgk suspects the “warm glow” associated with these transactions could counterbalance the pain of paying and result in higher spending, even when using cash.
Conversely, the research shows that the tendency to spend more with cashless payments is exacerbated in “conspicuous consumption situations”.
This means consumers spend more with cashless payments on products typically bought to signal social status or wealth to others.
The temptation to pay by card is enormous and include convenience, not carrying cash, and the push by businesses to preference digital payment options.
But Mr Schomburgk suggests budget-conscious buyers should avoid them. Persevering with the “pain” of inconvenience, it seems, can train us to save.
“Although it may sound counterintuitive, individuals should aim to introduce as much effort and friction into the payment process as possible,” he said. “It’s best to use cash when possible, to increase the perceived ‘pain of paying’.
“Reducing expenses is more important than ever due to the ongoing cost-of-living crisis we are all facing.”
Help us 'Keep Cash!'
National Seniors is calling for cash to be accessible and accepted, to ensure seniors feel safer and are not digitally excluded.
At NSA, we believe the push towards a cashless economy risks excluding older people and eliminates choice.
Our Keep Cash campaign calls for:
Online/digital transactions to be in addition to and not instead of cash options. Cash should remain a valid form of currency.
Support for seniors, including digital literacy education, such as the Be Connected program.
Retailers to continue to accept cash, so that seniors and others disproportionately impacted by cashless shopping are not excluded.
“Our message is about the need to keep cash, banks, and ATMs for older Australians and others who rely on and use cash and traditional banking services,” National Seniors’ CEO, Chris Grice said.
“Seniors, like most people, value the convenience of card payments; but as a key part of the payments and financial system, cash must be accepted and accessible.”
We need to keep cash for a range of reasons including reliability during outages including natural disasters; privacy, security, and trust; and budgeting.
Mr Grice said NSA welcomed the opportunity to contribute to the recent consultation on the Federal Government’s proposed cash mandate.
“Cash is easier for people living with a disability such as vision impairment or cognitive decline to use; it allows for small payments to children, grandchildren as well as charities; and it negates bank charges and card charges,” Mr Grice said.
However, he said NSA was disappointed that the government’s proposed mandate had come with limitations.
Join our Keep Cash campaign and learn more here.
Related reading: Treasury, Adelaide University, NSA
