Cash vs. Cashless: Why Convenience Can Make It Difficult For You to Save Money

There is no doubt that cashless payments are way more convenient than paying by cash. Unfortunately, they may be a little too convenient. Today, instead of dealing with cash and coins, we can make payments simply by waving a credit card or tapping a few buttons. However, research has shown that this simplification could lead to impulse buying and spending more. If you’re finding it hard to control your spending while going cashless, you’re not alone! Here are a few reasons why convenience can make it hard for us to save money.

1. The pain of paying is removed.

The pain of paying is a psychological concept that describes how people are less willing to make a purchase if that purchase hurts them financially. When we deal with cash, we have to physically part with our money as we see it leaving our hands. The discomfort from this ‘parting’ may discourage people from spending too much because nobody likes feeling uncomfortable.

However, cashless payments have removed that physical separation and the discomfort that it brings. Parting with our money hurts less if we don’t see it physically leaving our hands. When our spendings are reduced to digits on a screen instead of banknotes and coins that we can feel and hold, we might lose sight of how much we’re actually spending. This is why cashless payments could desensitize us towards the pain of paying, resulting in issues like impulse buying and overspending. As Matt Schulz, Chief Credit Analyst at Lending Tree, said, “Any time you make it too easy to spend, you make it harder to save.”

2. Credit payments encourage ‘pleasure before pain’.

Dilip Soman, a professor of marketing at the University of Toronto, once said, “When money is abstract, it’s easy to lose track of it.” This could not be more true. With credit and debit cards, it’s easy to forget just how much we’re spending, because the cards don’t look like cash. 

One study called this phenomenon ‘Monopoly money’, stating that people are tempted to spend more through cashless payments because it doesn’t feel like they’re spending real money. Non-cash alternatives tend to be treated as the fake dollar bills in the game of Monopoly, hence the name. Moreover, credit cards allow us to enjoy goods or services first before dealing with the bill. This indirectly encourages the ‘buy first, think later’ mentality by delaying the pain of paying to a much later time (which is when we have to face our credit card bills). 

So, although credit cards are convenient, they’re not very helpful if you’re trying to be frugal.

How can we go cashless the right way?

“But e-wallets and credit cards are so convenient!” I hear you say. Don’t get me wrong, I completely agree — there’s no way to avoid cash-free payments since we are moving towards a cashless society. However, there are simple practices we should adopt to prevent splurging with non-cash methods.

1. Track your spendings.

Make sure you’re always aware of the balances in your bank account and e-wallet. (This should be easier to do with e-wallets and banking apps since they automatically record your transaction history.)

2. Limit your spendings.

Set a budget for each week/month and stick to it. If you’ve already set aside a certain amount of money to spend for the month, then make sure you don’t spend more than that. Of course, this is easier said than done, so if you need reminders to stay within your budget, you can…

3. Set up alerts in your banking apps or e-wallets.

Most apps allow you to set a spending limit per day and will notify you when you’re about to exceed that limit. You can also choose to receive text messages for each transaction you make, which serves as a further reminder of how much you spend.

4. Centralize your money.

Stick to using just one bank account or e-wallet. This is because when your money is spread out in several accounts, it gives you the illusion of ‘if this account is spent, I have money in other places’. Besides, it’s harder to keep track of your balance in multiple accounts.

5. Don’t save your card/bank account details in shopping apps.

Make it more difficult for yourself to buy things online. Keying in your details every time may get annoying, but it will help in making you think twice before spending.

In short, cashless methods might make it harder for us to be frugal, but that doesn’t mean they’re bad. All we have to do is be a little more mindful about how we use our money. And remember: money is money – even if you can’t see it physically!