The cashless effect is our increased willingness to buy more product with cards and to pay more for them when no physical money is in hand. It’s the end of month and the credit card bill is higher than you thought it to be. Also you won’t remember making those purchases.
The cashless effect was first studied on 1979 by Elizabeth Hirschman who was a prominent theorist in marketing and economics. She believed people had tendency to spend more when they used credit cards then cash. She conducted a research she sent field interviewers to survey customers shopping in different branches of a department store chain. She found out people who used store card of or a credit card made larger purchases than people who paid cash. People with credit cards were biggest spenders and were happy to spend more.
There are several theories to explain the existence of cashless effect. In 1986, Feinberg carried out four separate experiments. Half of the volunteers just saw pictures of the products and half saw how much they would be willing to pay for the product. The result showed that the volunteers who were exposed to credit card logo were more willing to buy the products were prepared to buy the product more and to pay more for them and were faster to make spending decisions.
A leading alternative hypothesis is that credit cards facilitate our buying behavior by making us feel less psychological pain rather than when we spend physical money, reducing the so called “ pain of payment.” One way they achieve this is by delaying the pain of payment and thus separating the pleasure of buying from pain of paying. Cash payments leave a vivid memory trace and the pain of payment is enforced every time a transaction takes place. It’s much easier to part money when it’s tangible.
Also a recent fMRI study provides support for both theories by revealing that buying things with credit card activates the reward centers in our brains in contrast when it comes to cash purchases. The brain’s reward network is chronically sensitized by our prior experience with credit cards and that exposure to credit cards and their logos may both activate the pursuit of rewarding products and alleviate the psychological pain associated with paying for them by making the price seem unimportant.
Next time when you feel the budget is higher while using credit cards try using cash. This might lower down your budget.
