Budget and financial counselors often advise people to withdraw cash each week and use it to pay for daily and weekly expenses rather than putting purchases on a credit card. The theory is that if you see the money leaving your wallet, you’ll spend less. The theory is correct, as several research studies have shown. But it’s not exactly using cash that’s important—it’s the transparency of the payment.
Lower the transparency = more money spent — Payment transparency refers to how tangible the payment is. The more real or tangible a payment is, the more transparent it is. Here’s what we know about methods of payment:
- Cash is very tangible. You can touch it and put it in your pocket — it’s real—which means you don’t like to see it go away. It’s very tangible and very transparent.
- Writing a check is a little less transparent than cash, but it’s more transparent than credit cards. When you hand over a check, you don’t get it back, like cash.
- Credit cards are tangible since there’s an actual card, and if you’re using it at a store, you do hand over the card, but then the card gets handed back to you, so there isn’t a reinforcing sense of loss. Credit cards are less transparent than cash or checks.
- Using a credit card online is even less transparent. If you have your credit card number memorized or if the retailer you’re purchasing from has your credit card information stored, then you don’t even have to touch the credit card. The transparency is lower than cash or handing over a credit card in a store. You’ll likely spend more.
- Amazon’s one-click purchasing lowers transparency even further, since all you have to do is click the Buy Now button.
- Subscriptions for products and services where you sign up once and then money is taken from your credit card automatically are less transparent than any of the other methods.
If you liked this article, and want more info like it, check out my newest book: 100 MORE Things Every Designer Needs To Know About People.