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How Paying with Cash Helps You Stay Under Budget

You might not know it, but using cash to make your everyday purchases can wind up saving you money in the long run.

No, we’re not talking about how you’ll save on interest (though that’s certainly a possibility).

Paying with cash may actually help you be more value-conscious, and make better purchase decisions.

This information comes from research recently published by Professor Randal Rose at the University of South Carolina and Professor Promothesh Chatterjee at the University of Kansas.

The researchers looked at the spending habits of consumers, and how consumers made their purchasing decisions when using cash versus how they did it using credit.

how paying with cash helps you stay under budget

Their results might surprise you. Among the findings:

  • When credit cards are accessible as a form of payment, consumers tended to focus more on benefits.
  • When cash was the accessible form of payment, consumers tended to focus more on cost.
  • Cash customers not only focused more on cost, but they were also more specific about it. They got into details such as delivery or installation costs, warranty pricing, delivery times, and more.
  • Conversely, credit card customers made numberous recall errors when it came to cost. They couldn’t recall cost details as readily as cash customers.
  • Paying with cash leaves a vivid memory trace. Every time a payment is made, the consumer watches the money go away.
  • Cash customers experience greater “pain of payment” – that immediate realization of loss when a purchase is made.
  • Credit card customers didn’t experience the pain of payment. For them, the consumption of a product is entirely decoupled from payment.
  • This leads to instant gratification of desires when using a credit card. The consumer immediately feels the benefits of the purchase, without being distracted by the cost.
  • Cash customers displayed memory errors when it came to benefits. They weren’t as able to recognize benefit words as credit card customers.
  • There are a number of triggers that can prompt credit card payment. Examples included advertisements for credit in the store, credit card signs at the register, and even stickers on the entry doors displaying the acceptance of credit cards.
  • Credit card customers were more likely to make indulgent product choices.
  • Credit card customers were also more likely to purchase high-image products, even when benefits matched lower-cost products.

Clearly, whether we pay with credit cards or cash affects our purchase decisions.

Putting this information to use

Let’s step back and think exactly how this information helps you in your daily life.

Suppose you’re shopping for a new television. You’ve set a budget, based on what you can afford.

You walk into the store, and talk about the various product options with a salesperson. The television with the greatest benefits is beyond your budget by 20%.

If you walk in with just enough cash to make your purchase within your budget and stick to using cash, you’re not going to spend more than what you can afford. The moment you begin to consider a credit card, however, your purchase price scales up. You could wind up buying not only the television that’s 20% more expensive, but another 10% worth of accessories.

Shop smart, and within your budget. Choose cash over credit cards when you’re truly concerned about price.

David Rodwell is a seasoned writer in business and personal finance, taking a particular interest in payment processing. You can find more of his articles located at CreditCardProcessing.net.

 Photo Credit: Anthrocopy

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