How we pay affects how we feel about a purchase.
Where are we going? To cash.
The Impact of Using Cash
On a pain scale, paying with cash is the most distressing because we actually see less money. Not as transparent, checks and then debit and credit cards are next. But by far the least painless are those automatic bank account deductions that we might not even be aware of.
Researchers have long known that the form of payment affects how much we spend and how fast we decide what to buy. Now, they also believe that more painful transactions could increase our brand loyalty.
In one study, all participants paid $2.00 for a mug. Asked to resell it later, the group that paid cash set a higher price than those using credit. Their second experiment explored the connection between a cash or a voucher contribution to a charity. Similar to the first group, people who paid cash displayed more of a connection to the charity. They even found that university donors who paid by check rather than plastic were more likely to make a repeat donation.
When We Use Cash
Several months ago, the FRBSF (Federal Reserve Bank of San Francisco) created a handy chart that displays when we use cash:
Where We Use Cash
Becoming more specific, they then looked at which transactions are cash heavy. As you can see below, purchases for food and personal care supplies represent 62% of all cash transactions. By contrast, we use much less cash for meds and transportation. As a result, using plastic for Uber will not appreciably change our overall demand for cash. But ordering food online will:
Percent of Our Cash Transactions
Our Bottom Line: The Money Supply
Thinking economically, we can imagine the coin and currency, demand deposits and savings accounts, the debit card transactions that relate to these accounts, and the short term time deposits that compose our nation’s money supply. And, like Goldilocks and the Three Bears, we can know that maximizing our GDP means the money supply cannot be too big or too small but needs to be “just right.” Otherwise we create inflation when too many dollars chase too few goods or unemployment and recession if there are too few dollars.
My sources and more: For the summary discussion of the connection between cash and our brand loyalty this NY Times column is ideal while the academic detail is in the Journal of Consumer Research. For the next step, the FRBSF is always handy for some interesting research on cash.