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HomeApplied MathSpend Less (Psychology Of Money)

How would you like to automatically spend less and protect your identity just by using cash in place of plastic cards? Two things most of us are concerned about especially during this new age of hacking. Many of us enjoy some level of fraud protection when using credit cards. If our card number is stolen, we can file a complaint and not be responsible for the charge. This wonderful benefit is why I use credit cards.

However, I met a vendor on vacation recently who told me he got rid of his cards forever. When I asked why he said that his identity was stolen in the Target hack a few months ago. He claimed he never wanted to go through that again, so he only uses cash now. Besides identity safety, the very use of cash changes how we view our spending. The purpose of a card is obviously for ease of use. But, it has become so easy, it is a distraction to our perception of spending. Since we do not deliberate over our spending, we do not experience the “pain of payment” according to some studies. When we perceive this pain, we spend less.

We also value our purchase differently depending on how we buy it. “Across four experiments(1), we demonstrate that consumers perceive and evaluate the same products differently when primed with credit cards as opposed to cash. Specifically, when credit concepts are activated, people attend more to benefit aspects of a product whereas when cash concepts are activated, people attend more to cost aspects of the product being considered (i.e., the costs associated with product acquisition and use).” In other words, using cards takes our attention off the price and onto the product. Using cash reverses this perception.

Besides spending less and protecting your identity, I’ve noticed that using cash lowers the price of retail items. I bought some art from the above vendor who has a retail price of $60, but only $50 for cash without tax. I did not have the cash at that time and ended up paying $65 with tax. That is a 15% premium I could have saved. I recently had surgery, but since I don’t have health insurance, the cash price they gave me was 50% of the normal price. Remember, vendors have processing fees with cards that eat into their profit. So, they prefer cash too.

Using credit cards deludes us into making over-indulgent purchases that are not good for us. Whether it is eating or drinking too much, it appears that most purchases with cards can cost us in more than one way. So, let’s trick ourselves into saving money starting right now.

In conclusion, using the simple method of cash payment:

1. Helps us spend less

2. Helps protect our identity

3. Help get a better retail price

4. May even be better for our health

From: L. Johnson http://www.creativeretirementforwomen.com

(1)Chatterjee, P., Rose, R. “Do Payment Mechanisms Change the Way Consumers Perceive Products?” 11-13-2011. Chicago Journals, Univ. of Chicago Press. Retrieved on 6-23-2015 from website.

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