There’s long been the theory that paying with cash instead of credit is a good way to save money because it’s harder to part with cash than it is to pull out the plastic.
Well, new research shows that how much you spend can also depend on what denomination of cash you have.
University of Maryland Marketing Professor Joydeep Srivastava and his team found that people tend to think twice about making a purchase when they carry one large bill rather than smaller bills equal to the same amount of money. For example, you’re more likely to hang onto a $20 than 20 $1 bills.
“If you want to cut back on your spending in this tight economy, keep your cash in a few big bills vs. a number of smaller ones,” said Joydeep Srivastava, associate professor of marketing at the Robert H. Smith School of Business, co-author of the research. “In the face of the temptation to spend, you’ll be more reluctant to break that hundred-dollar bill so you’ll end up saving it.”
However, there can also be a “what the hell” effect when it comes to big bills. Once you break it, there’s a chance that you’ll spend more money than if you were carrying small bills.
“Unfortunately, once you break a big bill you’re less likely to pay less attention to the total amount you spend,” he said. “You’re more likely to throw self-restraint to the wind once you’ve released the impulse to buy.”
The research will be published in an upcoming issue of the Journal of Consumer Research. It follows previous research by the pair that finds consumers spend more when using credit cards or gift cards instead of cash.
I think the research is interesting, but I believe that everyone handles money differently. Since I’m so used to charging everything, paying close attention to whether I have enough money to pay the balance in full each month, I find that I have a “what the hell” effect every time I have cash.
How about you? Do you see yourself in these studies?
