You probably don’t need this article to tell you, but just in case your wallet has been living under a rock or you just woke up from a coma, the cost of living has increased dramatically in recent years. Both at home here in the United States, as well as abroad all over the world, people are finding it much more difficult to make ends meet.
Between groceries, housing, and transportation, a troublingly large number of Americans are stretching their budgets razor thin. If you’ve been having a hard time making the financial numbers in your life make sense, new research just released by the University of Adelaide is offering up an easy way to help promote less household spending. Keep reading to learn more.
Cash is king (when it comes to budgeting)
Overall average global inflation hit an astounding 6.8% last year. Meanwhile, statistics that hit a bit closer to home tell us countless American families are struggling to pay for basic needs like housing and childcare. For instance, the weekly cost of daycare for a toddler in the USA jumped by 9% in 2023, and daycare rates for infants increased by even more (13%). Another recent survey reports housing is largely unaffordable for a record-breaking half of all U.S. renters.
Unfortunately, there’s no secret recipe or magic trick for overcoming inflation and the cost of living crisis we’re all navigating nowadays. That being said, new findings published in the Journal of Retailing may help many curb unnecessary spending during their next trip to the store.
We all know the expression money talks, well, this latest report suggests cold hard cash often has a way of telling us to hold off on spending in a way that other forms of cashless payment (credit cards, mobile apps, etc) just can’t. Study authors found that using cash while shopping tends to promote less spending. They uncovered that cashless payment methods appear to result in more purchases.
A positive “cashless effect”
All in all, the team at UA say their work makes a strong case in support of a positive cashless effect. They explain, however, that peoples’ tendency to spend more when using cashless payments is especially prevalent while purchasing superfluous goods often used to signal high status (designer clothes, watches, jewelry). Notably, the same proclivity to spend more while going cashless was not seen in relation to either donations or tips.
“Against our expectations, we found that cashless payments do not necessarily lead to greater tips or donations, in comparison to cash,” says UA Ph.D. Student Lachlan Schomburgk, who conducted the study with the University of Adelaide’s Professor Arvid Hoffmann and Dr. Alex Belli from the University of Melbourne, in a media release.
“This indicates that traditional cash-based ways of collecting money, such as tipping jars and spiral wishing wells, are just as effective as cashless point-of-sale terminals to collect tips or donations.”
Cash or card?
It’s unlikely that life will suddenly become affordable again for the average American, which means even the smallest of splurges can spell disaster for many bank accounts. The research team believes readers should always be mindful of whether or not they’re paying with cash, as a more conscious effort to avoid credit cards and other forms of payment may lead to less spending and more saving.
“To prevent spending more than planned, we recommend consumers carry cash instead of cards whenever they can, as it acts as a self-control method,” Schomburgk adds.
“When using cash, people physically count and hand over notes and coins, making the act of spending more salient. If nothing is physically handed over, it’s easy to lose track of how much is spent.
“The transition towards a cashless society seems almost inevitable. I believe this research is crucial because it shines a light on an overlooked aspect of this transition: how payment methods influence our spending behavior. This understanding can help empower us to make more informed purchasing decisions,” he continues.
Advice for everyone
Study authors stress this financial advice isn’t just relevant for individual consumers. Both businesses and policymakers stand to benefit from these findings, albeit in dramatically different ways.
“Businesses should be aware that if they fail to embrace the cashless revolution, they might be unintentionally jeopardizing their revenue potential,” Schomburgk explains. “And policymakers should communicate to individuals unfamiliar with cashless transactions, such as people who don’t have bank accounts, about the potential of cashless methods to lead to overspending.”
Additionally, as technology continues to advance at a rapid rate, further research is warranted regarding newer cashless payment methods.
“Both buy-now-pay-later services and cryptocurrency payments have some unique features that are likely to have an interesting influence on payment behavior,” Schomburgk comments. “Given their novelty, there is currently limited academic research on both, which is where I believe future research is needed.”
Green is good
In summation, this report makes a compelling argument for all of us to spend a few more moments at the local ATM every now and then. Doing so may just lead to a lighter shopping bill by the end of the day.
Researchers point to the methodology of this project as a particular strength; they analyzed 71 published and unpublished research papers originating from 17 different countries. In total, this study’s dataset encompassed over 11,000 people.
“Through this meta-analysis, we identified key factors that make the cashless effect stronger or weaker, which individual studies could not find. By doing this, we uncovered new insights that had often been overlooked by other researchers in individual studies,” Schomburgk concludes.
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