Earlier this summer, 83 percent of consumers say they used cash to make a purchase making cash the most used payment method in the U.S.— and for good reason! Among cash’s many benefits, consumers appreciate that it enables them to build financial stability and reach their money goals. As our 2020 Health of Cash study showed, 49 percent of consumers believe cash helps them control their spending, while 42 percent say it helps teach financial responsibility.
Read on to learn some ways cash helps consumers become financially stable and prepare for their financial future.
Consumers Value Purchases More When Paying in Cash
Paying with credit or debit cards has its benefits, but appreciating the value of money isn’t one of them. When the process of making a transaction is a quick swipe, the purchase feels less real and valuable, versus the financial awareness consumers have when making an actual transaction with cash.
A study published in the Journal of Consumer Research demonstrated this when participants bought coffee mugs valued at $6.95 for $2 each, using either cash or credit. A few hours later, researchers told them they made a mistake and needed to “buy” the mugs back and asked each person to name their price for the mug. Those who’d paid with cash asked for almost $3 more than the group that paid with cards. “You feel something when you physically part with your money, and there are different levels of pain depending on the type of payment,” said Avni Shah, the study’s author and University of Toronto assistant professor of marketing.
Shah also suggests that customers are not the only ones who benefit from paying with cash — business owners see a reward too. Not only do they save on credit card fees, but the cash transaction also adds a positive emotion to the purchase for consumers, which can potentially promote repeat business. Talk about a win-win!
Cash Helps Consumers Shop Smarter
It may sound too good to be true, but something as simple as switching to cash purchases can help consumers spend less money. Researchers from a 2018 study published by the Consumer Financial Protection Bureau urged 14,000 credit union members with a revolving credit card balance to use cash for all purchases under $20 with ongoing reminders of this advice. After six months, consumers who were frequently reminded to pay with cash had less revolving debt—nearly $104 less debt, and their balances were 2 percent lower than their baseline average.
In a second study published in the Journal of Behavioral Decision Making, participants were given either a $5 gift card or $5 in cash to shop. Those who paid with cash bought more practical, useful items, while those with gift certificates bought items meant for pleasure. The choice is clear — for smarter shopping, choose cash.
Consumers Keep Track of Costs Better with Cash
Because using cash has a much greater physical component than spending with a credit card, it’s easier for users to recall what they paid. In a study published in the Journal of Consumer Research, participants played a word game — half were asked to think about cash, and half were asked to think about credit cards. They were then shown a picture of a camera, along with its price and warranty cost and its features (including zoom features and picture quality). The study showed participants who’d been primed to think about cash remembered the prices better, while those who’d thought about credit cards were more likely to focus on the camera’s perks.
Additionally, a study from ValuePenguin surveying students about their spending found cash users were 82 percent better at recalling an item cost than credit card users.
Consumers Stick to Cash Budgets
Consumers who choose to pay only in cash are often better at sticking to a set budget. This is because cash budgeting systems, like the envelope system, require consumers to stay within a set, physical allotment of cash. When the cash runs out, you know you have reached your budget in that category. There is no room for overspending and confusion when tracking expenses — which can often occur when budgeting and spending with cards.
Millions of people around the world depend on cash to buy products and services for everyday essentials. As the research proves, consumers who choose to use cash are setting themselves up long-term financial success.
To learn more about how today’s consumers use and benefit from cash, download our latest Health of Cash study now.