Card vs. Cash: This is Your Brain on Credit


Have you ever bought something with a card  that you would never have purchased if you had to hand over a weighty  sheaf of cash? Or does your credit card bill arrive at the end of the month only for you to exclaim. “How on earth could I have spent so much at  Chipotle?!” (trust me, I’ve been there.)

It’s All About the (Neuropsychological) Benjamins

Next time you reach for your wallet to make a purchase (large or small), consider that your brain actually responds differently to the experience of paying for things with cards than it does when you use cash. Numerous studies undertaken around the world point out that  the increasing digitalization of payment might actually cause you to be less careful with your money. In a recent report, behavioural economist Dilip Soman noted:

“When you pay by cash it is a salient, memorable transaction. However, when you ask people how much they will spend on their credit card this month 99 per cent will underestimate.”

In a study for the Journal of Experimental Psychology, Priya Raghubir and Joydeep Srivastava made a similar observation.

“using a less transparent form of payment such as a credit card or a gift card lowers the vividness with which one feels that one is parting with real money, thereby encouraging spending.”

Let’s Get Physical

In a 2013 survey, the Financial Consumer Agency of Canada reported that 85% of respondents held at least one credit card. New generations of cards, equipped with tags that let you “tap” to make a purchase instead of swiping or inserting a chip, are being issued at increasing rates. And with the ubiquity of the connected, Bluetooth- or NFC-enabled mobile phone,  payment solutions like PayPal, Apple Pay, Square and others continue to increase  in popularity. Ease of use and convenience are the selling points here: imagine all the time you’d save if every person in front of you in line at Tim Horton’s tapped their card instead of entering a PIN! Unfortunately, there’s a downside to this awesome 21st century wizardry: it may make your brain get lazy about its response to spending.

Using a credit or debit card bypasses the pain part of the brain’s reaction to spending and goes straight to the pleasurable feeling that says “Hooray! A new thing!” In light of this,  the solution for those who find themselves spending just a little too much may be to switch to cash for a while, forgo all the tapping and swiping, and let brain chemistry take over! When it comes to card vs. cash, the latter  is a tangible resource: it’s something you can divide up into envelopes to create a budget, you can hold it in your hand – and  monitor its use directly every time you need it. This can help create a healthier pattern of spending habits.

You Can’t Take The Apps From Me

We’ve established that using cash is your brain’s equivalent of looking before you leap. “But blog!” I hear you protest, “I’m a super connected digital citizen! I pay all my bills online, and I programmed an  IFTT this morning to make my toast and jam! I can’t stand the idea of not being able to track/manage my spending online!”

I hear you loud and clear! There are, of course, tons of great apps for mobile devices that help you track debit and credit spending. Mint, Manila, Level, Venmo… you name it, someone has put a spin on the digital personal finance experience. However, these apps often kludge when it comes to the decidedly non-connected world of cash: most will require manual entry of cash purchases into their tracking systems. As much as I believe that the low-tech “envelope method” may fit best with a cash-first strategy (my days as a studio assistant have conditioned me well), you can manage cash with digital, analytical flair by asking for (and keeping!) receipts wherever possible, then taking photos to upload your own archive or to a service like Just The Bill  that do the math for you.

Whatever the strategy, the goal is to achieve responsible spending. Don’t let your brain get too used to the super-convenient pattern of spending with cards, and your approach to personal finance might be changed for the better.