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Why You Spend Less When You Pay Cash

Do you think you spend less when you pay cash than you do when you use a credit card or debit card?  Research says you do.  I’ve never really trusted these studies though because I don’t know what they are really looking at.  For example, I would totally believe that the average credit card transaction is greater than the average cash transaction.  The reason being that people are more likely to pay cash for a $1 soda but put a $1,000 TV on a credit card, even if they have the cash in the bank to pay for it.  So by default credit card transactions are going to be higher, but that doesn’t mean at the end of the day that more money was spent that otherwise would have been.

However, I do believe that you spend less when you pay cash and the reason has to do with ice cream.  Yeah, you heard me… ice cream.

I love a bowl of ice cream after the kids go to bed.  It’s one of my favorite luxuries.  However, when I indulge in this treat more than about once per week I gain weight.  I know this, yet I still do it.  Once or twice a year I will eat ice cream every night for two weeks straight and then cry when the scale reprimands me.


I do it because the consequence is too far away from the action.  I want ice cream and when I get an immediate benefit (happiness) when I eat it.  Of course, for every action there is also a consequence.  But the consequence doesn’t come right away.  I don’t see the numbers on the scale move for a few weeks.  So right at that moment, when I’m standing in front of the freezer, ice cream scoop in hand, there is only the benefit on my mind.  I know someplace down deep that I’ll regret it later but at that moment all I can see is happiness.

Now, if as soon as ice cream touched my lips I got a stabbing pain in my side I probably wouldn’t eat it anymore.  The benefit and consequence would be immediately linked.  This would change my behavior and I would eat less ice cream.

Same goes for your purchases.  When you buy something you get an immediate benefit.  When you pay with a credit card you don’t feel the consequence of that action until the bill is due, some 30 days later.  While you know intellectually that your purchase caused the bill your emotions aren’t quite so sophisticated.  Your emotions have forgotten all about the benefit.  Some people even get mad at the bank for sending the bill!  Yes, they know their actions caused the bill, but their emotions don’t.  Their emotions are saying this bill came from nowhere.

So with credit cards the consequence comes 30 or 45 days after the benefit.

What about debit cards?  While studies show that you will spend the most with credit cards, they say you still spend more with debit cards than you do with cash.  And even though the money is taken directly out of your account with a debit card you still don’t experience the emotional consequences right away.  You might not be affected until your paycheck starts to run low, which could be a week or two after your purchase.  So again, the consequence comes maybe 7 to 14 days after the benefit.

But with cash the consequence is immediate.  You have $20 in your wallet and then you don’t.  You can’t put it out of your mind.  You can’t “work it out later”.  The money is spent and gone in one motion.  Certainly makes you think twice about that purchase.

Every parent knows that the closer you can get the consequence to the action the better chance you have of changing a child’s behavior.  Better to catch them drawing on the walls and punish them immediately than to find the drawings two weeks later.  We grown-ups are no different.  So if you are having trouble controlling your spending all cash might be the way to go.

Have you done this experiment yourself?  Do you spend less when you pay cash?

8 thoughts on “Why You Spend Less When You Pay Cash”

  1. I actually tried this as an experiment a while back and I can confirm this is true! Something about cold hard cash leaving your pocket that makes you think if that purchase is truly necessary!

  2. I think it’s interesting that you still spend more with debit over cash. That makes sense, although I would still think you would spend less on debit vs credit since you can’t spend money you don’t have on debit. I’m curious to hear if there’s a study on that.

  3. I definitely spend less when I use cash for two reasons. One, I ususally have very little cash, so if I want to buy something like a smoothies and I don’t have cash, I just don’t buy it. There’s a savings right there.
    Secondly, I definitely spend more with debit or credit. I would buy the combo meal plus a “treat” when using my debit card, but only get the burger and fries and drink water when using cash…A savings of $4.00! These little savings like that when using cash really add up over time.
    The main savings for me is with food and treats. We also spend less on our date night when we use cash. Less drinks, less expensive item on the menu, etc.
    I also pay less attention when using my debit card. I’m not sure how much the charge is until I go home and balance the register. But if I use cash, when it is gone, it’s gone!

  4. I tried it for a few weeks (so it is no where near a good “study”), but I spent way more with cash than credit. Now that I am a bit more disciplined I might have to try this experiment again. When I use cash I just can’t figure out where it is going. Yes, I can keep track of the receipt or note down the spending immediately. But CC gives me a great record on where I spent and that keeps me accountable. I have heard a lot of studies are done on this and the result was cash folks always spent less…

  5. Travis @debtchornicles

    Cash is a double edged sword for me. If I’m going somewhere that I know I’ll spend money, I bring cash, and that’s all I can spend. But if I just walk around with cash in my wallet for no reason, I’ll just blow it – usually on crappy food from a vending machine. 🙂

  6. Chelsea Prescotti

    I have tried this experiment before. When I have cash in my purse I tend to spend it right away. I buy a candy bar or a soda, I eat a bigger lunch or go ahead and order dessert. Am I the only one like this?

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