mobile-bannertablet-bannerdesktop-banner
US Dollars
Thomas Trutschel—Photothek/Getty Images

Paying With Cash Helps You Save. It Also Can Give You More Joy

Jul 18, 2016

Paying with a credit card has many benefits, but appreciating the value of money isn't really one of them. When the actual money is virtual -- represented solely by a line on a screen -- and the process of making a purchase is a quick swipe or a tap, it feels less real and less precious.

By now the fact that credit cards can make us less frugal is a truism, but it hasn't stopped many millennials from avoiding cash, because a lost credit card is an inconvenience and lost cash is actually lost money. However, new research from Avni M. Shah, a professor at the University of Toronto Scarborough, highlights another advantage of cash—making you like what you buy more.

It's the corollary of seeing the value of your money when you buy something, and it seems to be just as strong: When you spend $20 in cash, it's not just the money that has more value to you -- so does the item too.

Shah conducted an experiment in which one group of people purchased discontinued mugs with plastic and another with paper, then she tried to buy back the scarce mugs. Then she tried to buy back the mugs, but people name the price. On average, people who bought the mugs with cash wanted almost double what people who made the purchase in cash wanted.

That people clearly had a far greater attachment to mugs bought with cash could illustrate the irrational sentimentality we might assign a cash purchase, but those feelings could also be leveraged to actually enjoy a purchase more.

"Cash feels the most painful,” Shah told the New York Times. “Even a check feels quite painful.”

Shah performed a further study by giving out vouchers and cash for people to donate. The people who donated cash exhibited far more pride than the voucher donors, even though neither group was spending their own money.

For a consumer, exactly how to use this information isn't particularly clear. Shah told the Times she doesn't advocate for the total re-adoption of cash, but that reminders that credit cards spend actual money are important, suggesting email notifications to help drill that in.

And for businesses? Shah suggests that a cash-only policy might not be simply a way to avoid credit card fees but a way to add positive emotion to transactions, potentially promoting repeat business. Of course, this only works if people aren't in a hurry, as that classic Visa commercial showed eight years ago in which a cash transaction interrupted seamless card transactions—and if younger generations actually start carrying cash.

All products and services featured are based solely on editorial selection. MONEY may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions