The Power of Paper Money

While most people have heard that it is better to spend cash than to pay with credit, they may not completely understand the reasons why.  I thought I would go over a few of those reasons in today’s blog post but first I want to tell you a story.

I want you to think of a time that you had to run into a store or restaurant to pick up something and you did not have your credit or debit cards on you.  If you’ve never forgotten them, then try to imagine such a scenario.  You walk in, know what you are there to pick up, but wonder if you have enough cash on you to do so.  How does that make you feel?  A little iffy, right? 

I had that happen when I went to a McDonald’s once.  I had an entire troop of kids at my house and ran out with a huge order to pick up lunch for them.  We must have been doing a project at the time because the order was huge.  All I remember is pulling up to the drive-thru with a long sheet of paper with everyone’s order, placing the order, and then realizing as I pulled up to the window that I had forgotten my wallet.  My stomach just sunk.  Imagine that feeling and hold on to that thought.

Now let’s talk about the psychology of spending paper money.  There is a “pain” involved when you spend cash as opposed to plastics.  Maybe not as much pain as pulling up and having forgotten your entire wallet but definitely more pain. 

When you pull out a plastic card, it’s easy.  It’s convenient.  It’s also painless.  It doesn’t feel as real as spending cash.  Plus, people who use debit and credit cards are less likely to keep track of their spending altogether.  They simply look to see that they have money in their account or enough of their credit line available in order for them to make a purchase.  That’s not how you balance your checking account and it is definitely not how you should keep track of your budget.

Imagine playing a video game where you’re a firefighter.  If in the game, the object is to rush into a building to save a child and put out the fire, it might take you several attempts to learn how to do so.  In that game, you also know that you can die over and over again before figuring out that perfect way to save the child and put out the fire.  It is not the same as risking your life for real and rushing into a real building on fire where your real, one and only life is at risk.  Real-life is not the same and it doesn’t feel the same.

Real money, cash, is the same.  Your mind allows you to spend more money when you use plastic than it does when you spend paper money.  Your mind also allows you to spend money on less discretionary items when you use plastic.  You are more likely to not only buy things you don’t really need but, also, things that aren’t really good for you.  Psychologists have found that you are more likely to buy and eat unhealthily when you use credit and debit cards to purchase your meal than when you use paper money.  Amazing but true. 

So, we know that when we use Credit Cards and Debit Cards, we…

* Too easy to spend

* Spend too much, more than you have

* Pay more than items are worth

* Buy more than you need

* Buy things you don’t need

* Buy things that aren’t good for you

So, let’s see… you spend money more easily when you use plastic.  You spend more when you use plastic.  You spend more on things that aren’t good for you and items that you don’t really need when you use plastic.  What else?  Well, psychologists say that you put a higher value on products and services that you pay cash for and that paying with plastic actually increases the likelihood that you will overpay for a product or service. 

Are you a business owner?  Businesses that accept cash only have significantly higher ratings than those that accept credit cards.  People who use those businesses usually attach a higher emotional value to the products and services that they provide.  They found out that you will literally value the things that you pay cash for more and have a better “relationship” with those products and services.  So, business owners take note: you will create better brand loyalty and have more repeat customers if you accept cash only.  It’s true!

It’s the Power of Paper, people! 

We are creating a paper money challenge for October.  Starting the first, see if you can put away your plastic for the entire month and tell us about your experiences on our Facebook page.  We would love to hear about your experiences.  Share the challenge with your family and friends to create a contest to see who does the best and post pictures and comments to share on our page.  We look forward to your stories!

Michelle R Russell

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