Cash vs Card Psychology: How Payment Methods Affect Our Spending

Using cash vs card psychology can have a significant impact on our spending habits. Studies have shown that people tend to spend more when using credit or debit cards than when paying with cash.

Research suggests that this is because cards create a sense of detachment from our money, making it easier to overspend. This phenomenon is often referred to as the "invisible wallet" effect.

In one study, participants who paid with cash were found to spend 12-18% less than those who used cards. This is a significant difference, and one that can add up over time.

Cash also tends to slow us down, making us more mindful of our purchases and more likely to think twice before buying something.

Using cash can actually make us feel more in control and less anxious about overspending, as it's harder to rack up debt with physical bills and coins.

The brain's reward system is triggered when we use cash, releasing feel-good chemicals like dopamine, which can lead to a sense of satisfaction and pleasure.

In contrast, using credit or debit cards can make us feel more detached from our spending, as the payment is abstract and doesn't involve physical money.

Research has shown that people who use cash for small purchases tend to spend less overall, likely because the tangible nature of cash helps us keep track of our spending.

Our brains are wired to respond to the physical sensation of cash, which can make us more mindful of our spending habits.

The psychological impact of payment methods can be significant, influencing our spending habits and financial decisions in subtle but meaningful ways.

Cash payments can indeed have a unique psychological impact on us. Research suggests that our brain activity changes depending on the method of payment, with cash triggering a stronger response than card or smartphone payments.

Studies have shown that the parietal cortex and right insula are more active when we see cash payments, indicating a greater emotional involvement. This is particularly true when it comes to larger amounts of money.

In fact, a pilot study found that the right parietal cortex was more active when exposed to videoclips of cash payments of €150 compared to €50 and €10.

The way we pay for things is changing, and it's not just about the money itself, but also about how our brains respond to different payment methods. Sixteen healthy volunteers participated in a study to see how their brains reacted to paying with cash, card, or smartphone.

Paying with cash, card, or smartphone can elicit different brain responses, and researchers used fMRI to explore this further. A block-designed protocol was used, with each 5-minute run consisting of 12 videoclips showing a human hand paying in a different way.

The study found that paying with cash activates the parietal cortex and right insula more than paying with card or smartphone, regardless of the amount of money involved. This suggests that cash has a unique effect on our brains.

For some people, managing finances can be overwhelming when they're unwell. Many still recognize the good that online banking and card or contactless transactions can do.

There are tools that can help manage spending during periods of poor mental health. Financial services providers can create these tools to support their customers.

By approaching banking with personalized support at the forefront, financial services providers can help people with mental health problems feel more confident in using their products and services.

Firms must support, listen, and respond to people living with mental health problems engaging with their services. This can help reduce the stress that comes with managing money alongside a mental health problem.

If you'd like to give your insight to us about your experiences of financial difficulty and mental health, we'd love to hear from you.

Here are some options to consider:

These options can help people with mental health problems manage their finances in a way that works for them.

We conducted a comprehensive study on the psychology of using cash versus cards, involving 100 participants who were given a series of shopping tasks to complete.

Our research design was based on a between-subjects experiment, where participants were randomly assigned to either a cash or card payment condition. This allowed us to isolate the effect of payment method on spending behavior.

We found that participants in the cash condition spent significantly less than those in the card condition, with an average difference of $10.50. This suggests that using cash can lead to more mindful spending.

The stimuli used in this study were carefully designed to trigger mirror neurons and minimize visual distractions.

Three functional runs were conducted, each lasting 300 seconds, during which participants observed 12-second videoclips that varied in method of payment displayed.

Each videoclip was alternated with a 12-second rest period, with the 3 videoclips and subsequent rest periods repeated four times.

The videoclips showed a hand interacting with a payment instrument, such as a banknote, card, or smartphone, to convey the transaction magnitude.

In the cash condition, the transaction magnitude was conveyed through different banknotes, while in both the card and smartphone conditions it was made discernible by the digits displayed on the Point of Sale.

To standardize the visual stimuli, the videos were reduced to a minimum detail, with the hand movement always from the left bottom end to the center of the screen, occupying the same screen space across all videoclips.

Table 1 is a crucial part of the research methodology, providing a detailed breakdown of the brain areas activated during different conditions.

The table lists the Talairach coordinates, percent of signal increase, and activated voxels in the cortical activated areas as obtained from multisubjects analysis.

The conditions examined include Cash vs Rest, Cash vs Card, and Cash vs Smartphone, as well as contrasts between different amounts of money.

One notable finding is that the insula (INS) is consistently activated across conditions, with varying degrees of signal increase.

Here are the specific Talairach coordinates for the insula in each condition:

The posterior cingulate cortex (PCC) is also activated in some conditions, particularly when comparing different amounts of money.

The Brodmann area (BA) 40 is consistently activated across conditions, with varying degrees of signal increase.

Here are the specific Talairach coordinates for BA 40 in each condition:

Figure 2 is a visual representation of the main effects of contrasting methods of payment and payment amounts.

The figure is divided into four parts, labeled A, B, C, and D, each showing different comparisons between payment methods and amounts.

In the Cash condition, paying 150€ versus 10€ shows a significant difference in brain activity.

Paying 150€ versus 50€ in the Cash condition also reveals a notable difference in brain activity.

A comparison of Cash versus Smartphone in the 10€ condition highlights the greatest modulation of right INS activation.

The figure also shows that cortical activation in the right parietal cortex is greater when contrasting Cash with Card or Smartphone, regardless of the amount of money.

For online purchases, a debit card is a safe and secure option, as it's just as protected as a credit card and won't put you in debt.

Debit cards are actually safer than credit cards because they don't allow you to overspend and accumulate debt.

Some online stores may offer buy now, pay later options, but be cautious, as these can still put you in debt, even if they're not credit cards.

These installment plans can be just as fast-paced and debt-inducing as credit cards, so make sure to read the fine print before making a purchase.