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The Death of Cash

by Leeds Building Society

Cash is dying out, arguably with good reason: it's less convenient, takes up more room, and if you lose it, there's no getting it back from your bank or building society.

In Britain, we're particularly keen on cashless methods of paying for goods: a recent study found that we spend more online per household than any other country.

But studies suggest that the death of cash isn't good for our wallets: it's making us all spend more (and save less). Why? It's because of our strange psychological relationship with money.

Pain of payment

There's a psychological concept called "pain of paying", which refers to how unpleasant we find it to spend money. A few years ago, a large-scale study found that our pain of paying changes dramatically depending on which method of payment we use.1

The researchers discovered that people find cashless methods of payment much less painful. Paying by debit card seems like an abstract, distant sacrifice, so parting with it is a less difficult experience.

But the act of having to physically hand over cash makes us more considered in our purchases.

Credit cards are even worse than debit cards, because we don't even have to part with any money there and then. And when we do pay, we pay for lots of things at once, so we can't pinpoint the loss of the money on an individual purchase.2

Unhealthy habits

Not only do we spend more when we don't use cash, but we tend to buy more unhealthy things, and for the same reason: we're more impulsive when we don't have the pain of payment that comes with using cash. We know unhealthy foods are bad for us, and when we pay with cash, we take a moment to more carefully consider the purchase. We're therefore more likely to change our mind about buying things that aren't good for us.1

The other benefit of paying in cash is that you tend to buy only things that you really want and value. Several studies have found that people who pay in cash are more likely to have a good relationship with the items they buy. They're more likely to be loyal to that product, too.3

This even extends to charitable donations: one study found that people who donated in cash were 9.9% more likely to donate again to the same charity over the course of a year.3

So, outdated and inconvenient though it may seem, it might be time to try spending a little less using your card(s) and a little more using cash. You might be surprised by how much you save.

The cash challenge

Try and set yourself a weekly budget and withdraw this amount at the beginning of the week. The challenge is to leave your cards (and the temptation to make impulse purchases) at home. Try and only spend the physical money you have with you for that week.

You might be surprised by how much more committed you are to sticking to a budget if you have to part with physical cash.



1 "How credit card payments increase unhealthy food purchases: visceral regulation of vices" - published in the Journal of Consumer Research

2 "Tightwads and spendthrifts" - published inthe Journal of Consumer Research

3 "Monopoly money: the effect of payment coupling and form on spending behaviour" - published in the Journal of Experimental Psychology

4 "Paper or plastic? How we pay influences post-transaction connection" - published in the Journal of Consumer Research


This information does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide and you must make your own decisions. We recommend that you seek legal and/or financial advice if you have any questions or queries .