Card or cash: what makes you spend more

In many countries began to abandon the use of cash, and Britain and the United States — not in the forefront of these changes. But maybe the Americans and the British know something important about “cache”, just do not want to completely switch to electronic payments? Or citizens who still carry in my wallet a wad of notes clinging to the past? It found Lu-Hai Liang in his article for the BBC.

Карта или наличные: что заставляет вас тратить больше

Photo: Depositphotos

Hereinafter in the first person.

Remember as a child I tried to save a little bit, putting a special box of the money that I gave to day parents. Shiny pound coins add up in the columns, although not once the bar has reached a danger to themselves height.

I grew up in Hastings (UK), a small town in East Sussex, known for the battle of Hastings (1066) and its charm of a seaside resort, a little running, but always have “prospects”.

The first debit card I got when I was 14 years old. Then, to earn money for a one-year break from school after high school, I worked at the hall for bingo.

I opened a savings account in a Bank (credit cards I eschewed). In 2007, the interest rate was at 5% and I remember how you got after a year 70 pounds ($91) and felt very rich.

Now, quickly forward to 2018 when I lived and worked in Beijing as a journalist and freelance. Beijingers around me was paying for everything via smartphone.

In the restaurant, the store, in the supermarket they just showed the cashier the QR code that was scanned. Then the online system immediately deducted the exact amount of money from the electronic purse of the payer.

No hassles with paper cuts, no waiting delivery. Any procedures with a plastic card. Transaction took seconds.

However, I was a stubborn renegade. My friends, both from the West and the Chinese, made fun of me, calling it old-fashioned because I cling to the “dirty cash” — crumpled banknotes, who had been before me a thousand hands.

But I had a couple of reasons why I continued to use cash and do not want to move to electronic payments.

First, it seemed more secure. I didn’t understand how the system works using a smartphone, and feared that my money can just disappear.

Secondly, I was afraid that switching to electronic payments and lost the feeling of money in his pocket, abandoning the usual procedure of taking the wallet, finding the right bills, transfer it to the seller, I’ll never understand how much I spend in reality. And begin to spend more.

Were my fears justified? Worldwide, more and more people are refusing cash, and we need to understand where it leads.

Before you indulge in arguments about consumer psychology and the conflict between classical Economics and psychology that led to the birth of behavioral Economics think that all this money.

Money is an abstract concept. Today we take this concept for granted, not even delving into how a piece of colored paper or metal may have any value in itself.

But money is a relatively recent invention, and represent fundamental changes in human society, emphasizes Natacha Postel-Vinay, who teaches at the London school of Economics course on the history of money and Finance.

“From the very beginning they were very different from barter, she says. — You don’t need to look for full conformity with the desires of two different people. If you wanted to buy bread, the seller is not demanded from you in return of something special — your coat or vegetables from your garden. Now, you have to have in my pocket a few coins”.

Technically money is a store of value, they must be calculated a standardized unit and is one or the other currency.

The first was in the history of the application of money recorded in ancient Iraq and Syria, when the Babylonian civilization around 3000 year BC.

In those days people used the silver bars of a certain weight, shekels. Before we reached the record of Babylonian prices made by the priests of the temple of Marduk, and the first accounting book, including notes about the debt.

From the Babylonians we have inherited a lot of money important for economy of concepts. For example, the hardness of the currency needed stabilizing force in the face of the king or the government, which people could trust and that would guarantee the purchasing power of money.

But, although in ancient Babylon the money existed, they were pretty heavy and they had to be weighed. Until the coin has not yet reached.

Around the year 1000 BC, in ancient Greece, in the Lydian Kingdom, was minted the first coins.

First paper money appeared in China during the Tang dynasty (618-907), and initially existed as privately issued letters of credit or exchange notes. In Europe, the idea caught on only in the XVII century.

Today money not tied to any precious metal or other physical objects of value.

We use money not backed by gold, which just declared by the government as legal tender, although don’t have a valid value and is not backed by reserves.

The concept of credit (and debt) existed long before it was invented credit and debit cards. “To be money, you don’t have to be something tangible”, says Postel-Vinay.

The credit card issued by the Bank, was invented by John Biggins of the Bank of new York, Flatbush National Bank of Brooklyn in 1946.

Subsequently, credit cards were given to the salesmen so they could use them walking across America.

The UK’s first credit card was released on 29 June 1966 Barclays Bank, and the first debit — only in 1987. Chipped cards with a Pin was put into circulation in 2003 and cards for contactless payments — even four years later.

But back in modern China, where a common payment system by scanning a QR code in the smartphone.

Quick China’s transition to electronic payments can explain the widespread proliferation of WeChat — superpriority, combining electronic purse, messenger and functions of social networks and popular online stores like Taobao of Alibaba. And also the fact that China’s relatively low interest on credit cards.

Among the other States where a high proportion of cashless payments, can be called Canada. It is considered normal to have more than two credit cards.

In Europe, the leader of Sweden: a nationwide survey last year only 13% of Swedes admitted that they used cash at the last purchase. In 2010, the figure was about 40%.

Compare: about 70% of Americans continue to pay cash, according to a recent study by the Pew Center.

Emily Svensson, a Swedish journalist working in new York, says that the US and her homeland is very different in the use of cash.

“Here, many built in tips, and many stores simply do not accept payment cards or require a purchase of at least $ 10, she says about the experience of living in the US. — But something is still changing for the better. Imagine just five years ago, I paid for rent in cash!”

United Kingdom — also not the most advanced in the country. In comparison with Sweden, says 20-year-old MoA Carlsson, a seller of meat from Gothenburg, Britain looks old-fashioned.

“It seems to me, to use cash — it’s funny and almost weird, — she speaks, telling about his trips to Britain. — But in England, on the contrary — it is strange not to use cash. Lb, I think, occupies a significant place in the mentality of the British. Much more significant than the Krona in Sweden.”

For those who live in countries that are less dependent on cash, the benefits of electronic payments are obvious.

“It’s very convenient. It is not necessary to carry in a wallet 200 pounds or thinking about ATM. Where is the nearest ATM? He’s right there, in your pocket,” says William Vanbergen, a British entrepreneur, who first came to China in 2003, and became a great enthusiast of electronic payments.

Like Karlsson, he says fuss with cash is something outdated. When Vanbergen have to travel to Hong Kong, where cash is still more popular, or to return to his native England, is like a journey into the past, he says.

Well, how about perceived shortcomings? Whether non-cash payments provoke spending?

This is a complex issue, because people are basically irrational beings.

For example, psychologists have demonstrated that a sense of loss 100 pounds much stronger feelings of purchasing the same 100 pounds. The pain of loss stings harder than happy finding, although seemingly talking about the same amount.

The discovery of this psychological phenomenon has led to incredible changes in the economy.

In the economy of the classical scholars have built their theories on the assumption that people behave rationally (so that losing or gaining the same amount cause a person similar strength of feeling).

As shown by research psychologists, this was not the case. There is a new discipline: behavioral Economics and consumer psychology.

One of the leading researchers in the field of behavioral Economics — dragen Prelec, Professor Massachusetts Institute of technology.

He once conducted an experiment with time (unofficial) auction. It was attended by students Slonski prestigious business schools, it played out tickets for the games of the National basketball Association.

The researchers told half the participants that they can pay only in cash and the other half — those that only pay with a credit card.

The results have surprised scientists. It turned out that on average, those who could only pay with a credit card, betting twice as high as those who were connected with cash.

Says Prelec, this means the following: the psychological cost of a dollar spent on a credit card is only 50 cents.

Purchase via credit card obviously affect how much people spend. This was proved in many studies.

However, it was also demonstrated that coming at the end of the month bills cause severe mental suffering. So strong that behavioral economists believe that this may not explain the falling popularity of debit cards.

Well, how about e-wallets? Here the most important — feedback, explains Emir Efendic, psychologist and behavioral economist from Louvain Catholic University (Belgium).

“Using your credit card, you get quick status updates of your account. But paying via e-wallet, you can see almost instantly how the money leaves your account — said Efendic. — When there is no feedback — Yes, you start to spend more.”

In the case of credit cards the pain of reckoning is postponed (until then, until the bills for the month). Thus, credit card manage difficult psychological trick of separating the pleasure of the buyer from unpleasant feelings of parting with money.

But in the case of electronic wallets, users immediately see that the money left the account. Emily Belton, a Briton living in Beijing and using the system WeChat Pay, says she likes to notice immediately after each purchase — the balance is updated in real time.

However Prelec found a common to all psychological “moment a shudder” — our reaction to parting with money, which resembles a short physical pain.

Perhaps the “torque shudder” is when you pay with your smartphone — it requires a separate study.

Psychological suffering that we experience at parting with the money, can protect us from unnecessary spending, but, on the other hand, it poisons us the joy of consumption, the fun of shopping.

This psychological price that Prelec calls a moral tax can be reduced in several ways. For example, using a tool such as the purchase of several items combined in one set that includes something for free.

Another way — payment in advance, even if in this case there are no financial benefits. For example, it was found that for some reason people prefer to pay for the trip.

And when we are abroad, we much easier to pay in local currency, we take it less seriously than their “real” money.

A company like Club Med operates this mentality, selling at their resorts leisure plastic tokens, which they later pay off. The chips, naturally, are not perceived as real money, to part with them much easier.

As for me, I eventually switched to electronic payments, when I lived in Beijing. The system works perfectly, it is very comfortable. It’s like being in a world where you get the pleasure of shopping without the pain of parting with money.

Perhaps better for the economy when people spend money more freely, so in many countries governments encourage the transition to such a system.

The English philosopher Francis bacon once said, “Money is like manure: if they do not scatter, then they do no good”.

However, sometimes this kind of system, without the feeling of emptying of the wallet might cause some concern, anxiety.

Apparently, this is the “moral tax”, which says Drazen Prelec.