Buyers Spend More With Non-Cash Purchases
MONDAY Sept. 8, 2008 -- You spend less when paying with cash, and more when using credit cards, gift cards or gift certificates, according to a new study.
The findings, published in the September issue of the Journal of Experimental Psychology: Applied, also show that people spend less when they have to estimate expenses in detail.
"The more transparent the payment outflow, the greater the aversion to spending, or higher the 'pain of paying,' " researchers Priya Raghubir, of the Stern School of Business at New York University, and Joydeep Srivastava, of the Robert H. Smith School of Business at the University of Maryland, College Park, wrote.
The researchers asked participants to answer questions about how much they would spend using cash versus various cash equivalents in various buying scenarios. The scenarios included paying for a vividly described restaurant meal or estimating the expense to pay for a Thanksgiving dinner item by item rather than as a whole.
The researchers attributed the difference in spending behavior to the way cash can reinforce the pain of paying.
In another study, participants received either $1 in cash or a $1 "gift certificate" to buy candy. At first, they were more willing to spend the gift certificate than the cash. But after having the gift certificate for an hour, thus treating it like cash, the participants became less likely to spend it -- a sign that they had assimilated its value.
"The studies suggest that less transparent payment forms tend to be treated like [play] money and are hence more easily spent (or parted with)," the authors wrote. "Treating nonlegal tender as play money leads to overspending that authorities can warn consumers about."
Posted: September 2008