Last week YourLifeChoices highlighted the plight of vulnerable people left to cope in an increasingly cashless society. Affected people included older citizens in rural towns left without a local bank.
Yet the effects of shifting to a cashless society extend even further than that relatively small group. There is mounting evidence to suggest that the ability to purchase items without cash increases the likelihood of spending more.
Researchers call this phenomenon the ‘cashless effect’. In simple terms, it means that you are more likely to buy something if physical cash payment is not required.
The option to swipe your card, wave your phone or click a button onscreen makes a big difference. And for some, that difference can be dangerous.
What’s the science behind the cashless effect?
On the surface it might seem that the science behind this should be relatively straightforward. The long prevalent theory centres on what’s known as the ‘pain of payment’. This is the feeling generated by handing over of physical cash – especially larger amounts – when purchasing an item.
The suggestion is that this physical requirement pulls a ‘handbrake’ in our minds. As we pull out a large wad of $50 or $100 notes, we’re more likely to pause and ask: “Whoa! Do I really want to be spending this kind of money?”
No such mechanism comes into play when we are swiping a card or waving a phone, though. Such a pause will likely come later, when the credit card bill arrives, or you check your bank balance.
That theory makes sense, but more recent studies suggest there could be something else at play. Rather than simply releasing a handbrake when making a cashless payment, we might actually be stepping on the accelerator.
Researchers at MIT have uncovered evidence to support this alternative theory. They conducted a study comparing the brain behaviour of buyers paying by cash or credit card. In particular, they honed in on the ‘reward’ region of the brain.
This is the part of the brain activated by pleasure, reward, and anticipation of these things. It is strongly associated with addiction. And it turns out cashless payment is far more likely to activate this part of our brain than paying with cash.
Can we guard against the cashless effect?
The simple answer is, not easily. Research shows that even seeing the logo of a credit card company can trigger this part of our brains. Remaining disciplined and ‘aware’ when making cashless purchases will help. But we all know how difficult than can be.
Of course, making cashless purchases is not inherently bad, provided you can afford it. And moving towards a cashless society does have benefits, such as convenience for buyers and sellers. It also makes the crime of money laundering more difficult to perpetrate.
But, like all good things, it comes with a warning. Before swiping that card, waving that phone or clicking that ‘complete purchase’ button, stop for a moment. Then ask yourself, would I be happy to pay for this in cash?
What do you think about our increasingly cashless society? Would you prefer to continue using cash? Let us know via the comments section below.
Also read: Cashless Debit Card program set to end
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