Nick,Nick True wrote: There's one thing I haven't seen anyone point out yet that I would like to propose:
Perhaps this is only an issue in our current state of the world and that future generations will actually not have a difference. Also, what happens when cash is no longer a means of transaction. Places like Belgium are getting close to this.
Let me say this another way.
Thousands of years ago cash didn't exist. It was coins. Before that gold bars and jewels. Before that cows and chickens. When people stopped trading cows to buy clothes and started using gold bars, I'd be willing to bet that the people using the gold bars bought more clothes. In the same way that people who used coins instead of gold bars bought more. And now people buy more with credit cards than with cash.
And I would venture to guess that my grand-kids (i'm currently 23) will spend more on their virtual reality payment processor that's voice activated, than with a credit card.
Currently, people in general tend to spend more with credit cards than with cash... But what about the people in-between. I literally never used cash growing up. I've had a debit card since I was 14, a credit card since 18, and my dad taught me how to manually track my spending and income at 16 using Quicken. I've been manually tracking and entering every single receipt into my budgeting software since I was in high school. I would argue that I do not spend more with a credit card than with cash because I plan my dollars ahead of time. And also because I don't "feel" the cash as money any more than I "feel" the credit card when I swipe. I grew up nearly cash-less.
In fact, when I first started budgeting, I didn't even track cash. So when I pulled money out of the ATM my budget saw the money as already spent. So I would often find myself buying little things here and there more than If I swiped... If I swiped, I knew I had to enter the receipt when I got home.
You are right that people's purchase decisions are influenced by the familiarity. In general, the farther away you are from cash the more negligent you become. But if you look even closer, if you needed to barter with your belongings you would be even more careful than buying with cash, would bargain longer, and would be more willing to walk away from an exchange. Behavioral economists call it endowment effect: you value your possessions higher than those who do not possess them and higher than you valued them before they have become your possessions.
The role of the method of payment was demonstrated in different kinds of experiments. For example:
- people paying with plastic were more likely to buy candy while they were waiting for checkout
- students in dorms were more likely to drink someone's coke than to take an equivalent amount of cash
- students were more likely to cheat when they were paid with tokens than with cash, even when tokens were exchangeable for cash a few steps away.