Why does paying with cash for a dinner feel worse than paying with a credit card?
“Pain of paying” is different between cash and credit cards, or even debits cards which I will talk about it later in this short essay.
Let’s firstly think about the difference between cash and credit cards. I will bring up three assumptions and to analyze them.
Firstly, the physical part, or you can call it the “Inert Nature”. Cash is more vivid than credit cards. Imagine that you gave a dozen of cash to a cashier or the digital number of your credit card went down, which is more abstract. The abstract experience of parting with money is less painful than concrete experience of parting with the same amount of money.
Secondly, the actual time you pay the money, you can call it “Delayed Effect”. Cash was paid immediately, but credit card was only paid when the payment due date is coming. It is not the case that you don’t feel any pain while you are using a credit card. You will eventually feel the pain when you hold the bill with your hands.The pain was delayed.
Thirdly, which is my own immature assumption, is “Ratio effect”. What I mean is the ratio between the money you paid and the total money you are taking at that time. For most cases, a credit card is like a big face value bill for $10,000 or more, but you won’t take such big amount of money in your wallet. Although ATM machines are easily available, but the effort you spend on ATM machine is an inherent cost for you which sometimes keep you from doing that, at least lures you to use credit cards.
Here is the problem. Imagine a person who took a credit card, the maximum overdraft of that card is $10,000 and another person took $1000 cash. They both bought a cell phone for 500 dollar. For the first one, the cell phone only occupied 1/20 of his total amount at that time, but for the other person, he lost a half of his money, although he may has a lot of money in the banks or under the mattress, but at that specific time, his “mental account” is just $1000.
To wrap it up, we can find there is one thing in common:” Attention”. The vitality of cash, Immediacy and the bigger ratio all indicate cash get more attention. We may conclude that the more attention a payment get, the more pain people will feel,
How can we spend money in a useful way?
It is apparent that the “pain of paying” is a bad thing. No one would doubt that it did hurt us a lot. But, on the other hand, it can curb impulsive responses and thus reduce the purchase of vice and irrational products.
Two suggestions: when you are buying vice products or you realized that it is irrational to buy it, use cash! Last but not the least, always think about the opportunity cost of money in a general sense.
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