Polls / October 12, 2011

Do you find it easier to spend coins than a large denomination note?

Respondents to the latest eZonomics online poll are split on whether it’s easier to spend coins that large denomination notes.

I’ve got to break a €20
There is debate over whether shoppers are less likely to spend if they have to break a large denomination note. Consider a packet of chewing gum. Would you buy it if you had to break a €20 note? What if you had the right change in coins? A study on the “denomination effect” published in the Journal of Consumer Research finds people are less likely to spend if they have to break a 20 (as opposed to having 20 single bills).
It prompted Time magazine to write: “Want to Save Money? Carry around $100 Bills”. Time also cited a study from China with similar findings – suggesting the denomination effect stretches across different cultures and currencies.
At the extreme, moves to increase the number of cash machines dispensing £5 notes in the United Kingdom could have a roll on effect for spending.

Paying with cash “hurts”
Despite cash being highly versatile and, in investment terms, liquid, people seem do treat it differently depending on how it is stored.
In addition to the denomination effect of large bills, behavioural economics suggests paying with cash "hurts" more than paying with credit card because the transaction involves physically handing over money – rather than swiping the plastic and being charged at a later date.
Behavioural economist Dan Ariely blogs on the topic. Writing about a meal, he says: “When we pay with a credit card the timing of the consumption of the food and the agony of the payment occur at different points in time, and this separation allows us to experience a higher level of enjoyment (at least until we get the bill).”

ShoppingDan arielyCash

eZonomics team
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