Why does paying without physical cash increase the likelihood that we purchase something?
The Cashless Effect
, explained.What is the Cashless Effect?
The cashless effect describes our tendency to be more willing to pay when there is no physical money involved in a transaction. It means that we are more likely to purchase something on a credit card than if we have to pay for it with cash.1
Where this bias occurs
This effect occurs in any scenario where we use digital forms of payment instead of cash, which these days makes up most of our transactions. Unfortunately, whether it’s a big or small purchase, we are likely to spend more money when we don’t physically have to give it up.
For example, imagine you are at Best Buy, looking at an $899 TV. It is very unlikely that you would decide to buy the TV if you had to pay for it in cash. For one, you would have to carry around a lot of money, which can be unsafe, and secondly, it would feel a lot harder to part ways with a wad of cash than to give someone your credit card. Secondly, you may not actually have $899 saved up to use. But, if you can use a credit card, you don’t need to have that money immediately. So, you go ahead with the purchase.
