Using cash is better for financial awareness, study suggests

Fewer people are using cash than ever before. It’s not surprising, carrying cash around can be a hassle. And why even use cash when there’s the convenience that digital payment methods offer? However, perhaps that convenience comes at a cost: staying financially aware and responsible.

Researchers at The University of Surrey, in England, conducted a study to uncover more about why physical cash influences spending habits in ways that digital payments don’t.

The researchers found that using cash makes people more aware of their spending, creating a sense of psychological ownership. In contrast, people feel more detached from their money when they make digital payments.

Dr. Jashim Khan, the study’s lead author, stated: “The visceral nature of cash—its smell, feel, and the act of counting it—creates an emotional connection that digital payments lack.

“When we handle cash, we are not just spending money; we are parting with a piece of ourselves.”

Cash is tangible. You can smell it, touch it. This is thought to be why people have more of an emotional connection with it. When people spend cash, they are parting with something tangible. A purchase with, say, a touchless card doesn’t give someone that same feeling of loss.

The researchers looked at data from two very different cultures: New Zealand and China. They found that participants from both countries reported heightened awareness of spending when using cash.

One participant said: “Digital money doesn’t feel like spending your own money; there is no concept of money, but cash is different; it always feels like your money is decreasing when you use it.”

And this isn’t the first study of its kind to explore the differences between spending in cash versus digitally. An Australian study published earlier this year found that cashless payments can more easily lead to overspending. One of the authors of that study, Lachlan Schomburgk, recommended that consumers carry cash instead of cards “whenever they can.”

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References:

1. Khan, J. and Belk, R. (2024), “Money you could touch: cash and psychological ownership”, Qualitative Market Research, Vol. 27 No. 5, pp. 820-840. https://doi.org/10.1108/QMR-04-2023-0049
2. Lachlan Schomburgk, Alex Belli, Arvid O.I. Hoffmann, “Less cash, more splash? A meta-analysis on the cashless effect”, Journal of Retailing,
   Volume 100, Issue 3, 2024, Pages 382-403, ISSN 0022-4359, https://doi.org/10.1016/j.jretai.2024.05.003