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No so cashed up

timtam4In early May, 2015, news services reported that Denmark, one of those wacky Scandinavian countries that just seems to be obsessed with being progressive, would allow retailers to only offer card payment, and allow them to ban cash as a means of transaction. For quite a while, Scandinavia has been all about a cashless society. In Sweden, they’ve taken it one step further with a vein scanner, where you pay for your coffee by entering the last four digits of your mobile phone number, and then hold your hand above a sensor, while it scans your veins – presumably to see if you have Black, Platinum, Gold, Silver, or just boring old red blood.

But, will we ever see Australia go completely cashless?

I don’t think so. While Australians are also pretty good at adopting new technology, we are also pretty good at not giving up the old stuff. Prospect theory, which tells us that we value losses more than we value gains, would suggest that we are unlikely to give up the perceived usefulness of cash, at least in the short-term. That said, at an incremental level, we are using our cards more and more, particularly in relation to the swipe and go PayWave and PayPass technology. According to a Westpac forecast made in 2014, there would be almost $3 billion in contactless transacations in Australia in 2015.

But, there are other reasons why we should be hesitant to give up cash totally, and these tend to be directly related to the hip-pocket nerve – well, kind of.

Research in psychology and neuroscience has suggested that there is a kind of emotional competition between the immediate pleasure of buying something, and an equally immediate pain of paying for that something. A study published in the journal Neuron in 2007, found that the region of the brain associated with pain processing (the bilateral insula) activated when participants saw prices that were too high. In the study, people were placed in an fMRI machine, given $20 cash and given the opportunity to buy something. What the researchers found was that the handing over of cash caused a sense of pain for them, or at least that’s what was observed happening in the brain.

While strapping a person into a machine that goes “ping” (actually, it goes “de de de de de de de”) has a kind of scientific allure about it, we already know a lot of this from less sexy studies using psychological experiments.

One of the things we know about human behaviour is that we have a tendency to “couple” or clump bits of information together in our minds. So, when we buy something with cash, we know straight away how much that thing is going to cost us. We also know that we no longer have that amount of money in our wallet or purse.

But when we use a plastic card, we are, ostensibly handing over something quite abstract… for example, if I am at my local cafe, and I have to pay in cash (which I do), when I hand over my $20 bill for my salad roll and my espresso, and get $8 back, I am conscious of all the costs associated with it… it’s all happened in the same moment, so there’s no distance between the payment and the loss of the use of that money.

But, when I pay with a card, whether it’s debit or credit, there is a degree of psychological and temporal distance. Most people don’t know exactly how much they have in their savings or credit account; they might have a general idea, but you can see that it is not the same as cash. It requires effort to check; while looking in your wallet, as you are paying, requires next to no effort.

So, when you hand over your card, or PayPass it, you don’t see the money disappear from your hands, and therefore, feel like you’ve lost anything. You’re also creating a kind of abstract distance between the payment of the bill, and the usage of the money that you have. And that is sometimes extended even more, because with credit cards, you don’t actually get the bill until, sometimes, two months after you have spent the money, and consumed the product. So, you aren’t coupling the payment for the lunch, with the actual loss of the income. Which means that you aren’t feeling the pain of the payment.

In addition, research tells us that people are more likely to buy unhealthy food, on average, when they pay using cards, as opposed to using cash. The study published in the Journal of Consumer Research in 2010 analysed the shopping behaviour of 1,000 households over a period of six months, and also found that debit cards led to a very slightly higher level of impulsive purchases, and unhealthy products in the basket than credit cards. Although it was statistically significant, it was small, but the use of either debit or credit cards meant that the consumer was more likely to put unhealthy food into their baskets. In one of the experiments, participants spent 40% more on “vice” product (such as chocolate biscuits or frozen cheesecakes) when they were using credit cards, than when they were using cash. The mode of payment didn’t affect the amount spent on “virtue” products. (such as rolled oats). The researchers even classified different types of spenders as “Tightwads” and “Spendthrifts”, and found that “Tightwads” were likely to spend 56% more on impulse products when they used credit, than when they used cash. They also that participants also thought “less” about their product when they chose vice products.

But, there is nuance in these broad findings. Context is everything. A different study found that if we were buying indulgent food, such as chocolate cake, for immediate consumption, the pain of using cash was offset by the excitement and anticipation of eating the delicious, exciting food.

So, the greater the pain of payment, the more likely we are to choose foods that we wouldn’t normally consider as part of a healthy diet, but only if we plan to eat them straight-away. In one of the experiments, the researchers created a cafe afternoon snack menu, and found that people who paid with cash consumed close to 80 more calories than those who used a card. And those people who paid with cash consumed products higher in total fat (3gms or 15% more), salt (130mg or 17%), carbs (8gms or 13%) and sugar (1.5gms or 6%), than those who used a card to pay.

Which returns us to the earlier research; the idea that paying for something causes a sense of “pain”, and paying with cash hurts more than paying with a card. So, people are offsetting that pain by choosing something that they know is indulgent, and is probably not good for them. They’re treating themselves to make themselves feel good after the trauma of spending money.

So, the moral to all of these stories… put a freeze on your cards (maybe literally – stick your cards in the freezer for month and see how much you spend), don’t go shopping when you are in an fMRI machine, and eat more chocolate biscuits (well, that’s my interpretation of the findings).