Carrying cash is good for your wallet

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March 31, 2009

I was surprised to read that are willing to pay more when they pay by credit card. Apparently they actually have a higher willingness-to-pay if a credit card is used, relative to a cash payment. Freakonomics reports an instance where a beggar made more money than ever by just holding a sign which solicited credit card donations online!

I’m baffled as to why people would pay more by credit than by cash. Does spending just feel more tangible when you have to hand over a wad of cash? If so, I wonder if EFTPOS encourages more spending than cash!?

About the author

rauparaha

James Zuccollo is an economist at NZIER.

Permanent link to this article: http://www.tvhe.co.nz/2009/03/31/carrying-cash-is-good-for-your-wallet/

7 comments

5 pings

agnitio

March 31, 2009 at 5:09 pm (UTC 12)

Bounded rationality maybe? When I have cash I am much more conscious of how much I spend as I only have a certain amount of money on me. In a way it acts like a temporary budget constraint.

On the otherhand when I use eftpos/credit card the budget constraint is a lot looser.
goonix

March 31, 2009 at 5:45 pm (UTC 12)

I experience the opposite. I dislike having cash on me and hence tend to spend it relatively faster.
Brad Taylor

March 31, 2009 at 5:53 pm (UTC 12)

I’m always keen to get rid of shrapnel, but reluctant to break a note.
StephenR

March 31, 2009 at 5:59 pm (UTC 12)

Asian tourists/students are known to carry a lot of cash – doesn’t do them much good when they get targetted and mugged for it!
Truth Seeker

April 1, 2009 at 8:20 am (UTC 12)

I agree with both agnitio and goonix. Some people will blow all they have if they have access to it on the spot (credit card), while others won’t spend if they don’t have cash in their pockets. I’m in the latter group now but have also spent some serious time in the former. I’m sure there are many other variations and mixtures. People, if anything, are highly variable at the margins.
Christina Viering

April 1, 2009 at 5:34 pm (UTC 12)

Have it, spend it.
Jiani

April 2, 2009 at 1:21 pm (UTC 12)

I usually pay by credit card since for every $150 I spend I get $1 back. After a year or so, it can cover at least one week’s grocery.

However, taxi companies now charge $2 for credit/eftpos card payment – it’s the pain of not having enough cash in my wallet.