Cash, Card, or App: The Psychology of Spending

Withdrawing cash and using a debit card remove money from a checking account. However, the two actions might place different implications on the account's balance. Some vendors charge small card processing fees, even for debit cards.

Consumers are often more willing to spend money when using a debit card than cash. Researchers note that people may spend more with a debit card than with physical cash because they do not see the physical money going away. Some experts theorize that society is moving toward a cashless future.

With the convenience and increased availability of contactless payment, consumers must learn how to use debit cards responsibly. This might involve checking a banking account daily as part of a morning routine. This step could help spenders visualize the physical money disappearing from their account. Adopting this practice could also help consumers understand the psychology of spending more with a card.

Most credit cards incentivize spending with cash back or travel perks. Some cards offer a significant bonus if users meet a certain spending quota within their first few months of opening the account. However, these benefits come with a cost. Consumers may spend more than they usually would. Additionally, many credit cards charge an annual fee to unlock benefits.

While responsible card usage benefits consumers' credit scores, one mistake like a late payment can lead to a negative credit mark and a higher interest rate. To mitigate the risk, consumers can register for automatic payments and pay off their balance monthly.

Just like with debit cards, credit cards alter spending habits. Some researchers refer to credit cards as Monopoly money since users fail to equate it with tangible, real money.

One survey on consumer habits suggests that individuals feel more emotionally attached to an item purchased with cash. They refer to it as a more painful spending method. Another study reveals that credit card payments increase unhealthy food purchases.

Before making a credit card transaction, consumers should consider whether the purchase is necessary and question the value it brings. Unlocking self-awareness when spending with a credit card helps consumers reap the benefits while spending responsibly.

Consumers should also understand the psychology of paying with a smartphone. Financial content online often theorizes that paying with a smartphone carries a similar psychological weight as paying with credit cards. However, experts need more research to confirm this theory.

One study by University of Illinois operations management researchers shows that paying with a smartphone app increases the overall transaction amount and frequency. The researchers theorize that fewer people will carry physical credit cards in the future.

Retailers also encourage consumers to shop directly through their apps. They store credit card information to make the purchase as seamless as possible. With one press of a button, consumers can get almost anything delivered to their door in less than two days.

However, spenders can also use smartphone apps for good. Budgeting apps can help combat the impulse to spend more. People often think twice before spending when they know their checking account balance and savings goal.