Buzz
We tend to place a higher value on the items we purchase when paying with cash, as it creates a stronger emotional connection to the transaction. A recent study funded by the Consumer Financial Protection Bureau shows that people tend to spend less when they use cash, especially when they receive frequent reminders to do so.
The research examined 14,000 credit union members who had ongoing credit card balances. The goal was to test whether financial guidelines could help these individuals reduce their revolving credit card debt. Two strategies were put to the test: first, encouraging purchases under $20 to be paid in cash; second, reminding consumers that paying with a credit card could increase the price by 20% if the balance is carried over. These reminders were sent through emails, banner ads, and even magnets featuring one of two messages:
“Avoid swiping for small purchases. Use cash when it’s under $20.”
“Credit keeps accumulating. It adds about 20% to your total.”
The results showed that when consumers were reminded to pay with cash, they ended up with less revolving debt after six months. The researchers concluded:
Consumers who followed the first financial tip ended up with $104 less in revolving debt after six months, with their balances decreasing by 2% compared to their initial amount.
While $104 may not seem like a lot over six months, it's a substantial amount when you factor in the interest charges on a credit card balance that's carried month-to-month. This finding aligns with a 2012 study, which showed that people were willing to spend twice as much on an item when using a credit card instead of cash.
This highlights how small actions can accumulate, and how a few simple reminders can lead to meaningful financial changes. To learn more about the study, check out the links below.
Photo by bfishadow
