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Want to Spend Less Money?

Consider changing the way you pay for things

Spend less money - cash or credit


Research shows that consumers who pay with cash rather than credit cards may spend less money.

I looked at my 2 percent cash back rewards credit card summary a few weeks ago and noticed that I had received $1,400 cash back over the past couple of years. Since I use it as a charge card, never carrying a balance or paying any interest, I could think of this as free money. But was it really free?

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Let's do the math: To earn that $1,400, my wife and I spent $70,000 on goods, services and day-to-day items. That amount of purchases, even over two years, raises a few questions. Did we need all of it? Did having a credit card (and knowing that I was getting cash back) make it easier to spend more? Do I really use all of the things I've bought online?

In a recent presentation, Avni Shah, assistant professor of marketing at the University of Toronto, discussed research conducted on the relationship between how we pay and how much we spend. There is a hierarchy of feedback our brain receives based on how we pay.

The research indicates that cash is the most painful way, followed by check, swiping a credit or debit card and, finally, buying online. Here, pain is defined as the psychological aversion associated with parting with one's money.

"Cash is the most painful because it is the legal, government tender of money that people grew up with," Shah said. I suspect we would also spend less if we knew it meant additional trips to the bank or ATM to get more cash.

Shah then noted that a check is the second most painful way to pay because you have to write out the amount, making that amount salient (though less painful than cash, since you can write $5 or $5,000 with the same paper).

The credit card is next on the list, she said, because it is just a quick swipe. There is no rehearsal process since you do not write the amount in the box or in full written form.

Online or mobile is even less painful because it is a quick action on a medium not associated with payment, since computers can be thought of as work devices and phones maybe as communication or social devices.

I asked Shah if more pain was associated with less spending. "The less pain associated with the form, the easier it is to part with [the money] — which can imply more spending," she answered. She also said her research shows that the pain can be a good thing when it comes to valuing what we purchase. The more pain we feel during the spending process, the more likely we are to justify that pain by the value we place on what we purchase.


Shah's research reveals that one way to control spending is to put those credit cards away and use cash and checks instead. Though buying stuff online can often save a bundle, it might be a good idea to pause before clicking, perhaps wait a day and ask yourself if you really need that purchase. Even having to manually enter your credit card and shipping information — versus having it stored by the store or on your device — gives you a little extra time to think before you buy.

Allan Roth is the founder of Wealth Logic, an hourly based financial planning firm in Colorado Springs, Colo. He has taught investing and finance at universities and written for Money magazine, the Wall Street Journal and others. His contributions aren't meant to convey specific investment advice.