Holding different types of cash influences saving and spending
New research shows that the type of cash people carry – coins and bills – determines how much they spend.
The findings are contained in a recently published paper in the Journal of Consumer Psychology titled, “When cash costs you: The pain of holding coins over banknotes”. The article was co-written by Nicole Mead, Associate Professor of Marketing at Schulich, together with Jay Zenkić, from Deakin University in Australia, and Kobe Millet from Vrije Universiteit Amsterdam in the Netherlands.
“As a starting point in our research, we found it inconvenient to hold onto certain types of cash because of its physical characteristics – for example, bulky coins – which we term the pain of holding,” says Mead. “This pain, in turn, may drive consumers to spend more money as people try to rid themselves of annoying stimuli.”
The researchers conducted a field experiment with rural labourers in India and two experiments with American participants. They tested their hypothesis by giving people coins or equivalently valued banknotes and then measured their pain of holding and subsequent spending. The research findings showed that carrying coins increases spending because of this “pain of holding” factor, says Mead.
Why is this significant? According to Mead, their research findings “suggest that the pain of holding contributes to under-saving, which may be especially problematic among vulnerable populations who rely on cash.”
The researchers also provided some practical recommendations for people wishing to encourage savings or spending. Mead says that organizations and governments could encourage saving – as well as reduce administrative and minting costs – by returning change to consumers digitally rather than in cash.
On the flip side, notes Mead, organizations or businesses interested in promoting greater spending or donations could provide consumers with more coins as part of their change. As an example, Mead says that a museum seeking to increase donations could provide more coin-based change for tickets to encourage donation.