Paper, Plastic, or Ephemera?

How do you pay at the checkout line? Between checks, credit and debit cards, and online payment services like Paypal, it’s sometimes surprising when we see someone pull out actual cash these days. The way you pay may seem to be of little importance, but in truth, the money doesn’t all spend the same.

Particularly if you’re under 30, you probably use – and grew up using – a debit card for a lot. It just makes so much sense; less bulk in your wallet, less for a pickpocket to lift, less chance of getting caught at the store five dollars short. Plus, it’s trackable – the money that you spend on a debit card no doubt comes with online banking, allowing you to look back at the end of the month and determine why the grocery money ran out so quickly.

The trouble with this idea that debit cards are more trackable than checks or cash, according to Hong Kong researcher Dilip Soman, has to do with the fact that humans, not computers, have to do most of the work involved in that tracking on a day-to-day basis. According to his research, we have mental “pools” for how much money we’ve spent on broad categories of purchases – housing, food, entertainment, and so on – and each time we complete a transaction, we subtract the transaction price from the appropriate pool, mentally.

Regardless of your mental faculty with basic arithmetic, doing this mental juggling requires that you remember the transaction. As it turns out, debit and credit card transactions leave very little in the way of a mental imprint. If you consider the process of a card transaction, it’s easy to see why: with a card, you swipe, sign a slip, and you’re done – you don’t even have to look at the total. (Today, if the transaction is small enough, you don’t even have to sign, most places; new technology has also removed the physical contact of the swipe, opting instead for touchless systems like PayPass.) If you write a check, on the other hand, you have to take the time to write out the full transaction amount in words and numbers, cementing the exchange in your mind. Cash would seem to provide the lowest imprint – nothing to write, nothing to sign – but with cash, a physical exchange occurs. You can tell how much you’ve spent from moment to moment simply by checking the amount remaining in the wallet.

On top of this, social and behavioral researchers Morewedge, Holtzman, and Epley recently described a broader phenomenon related to card use, called the “accessible account effect.” They suggest that people perceive the sting of a financial transaction as a fraction – the cost of the good being purchased versus the amount they have to spend. If the pool of money is the $100 in your wallet and the season box set of The Wire is $50, that’s half of your money gone. With the increasingly common setup of a debit card linked to the checking account where your paycheck direct deposits, however, the pool of money you have to spend becomes an arbitrarily large number compared to the amount of cash you would reasonably be carrying, so that $50 is a very small fraction of your available funds.

A month later, you’ve spent that $50 ten times over, easy as a wave of the card-hand. All of this stealth spending can add up to one big, painful blow to your finances. Fortunately, the research says you won’t remember it, anyway.

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