Stories | February 6, 2013

The weird thing about new, crisp bank notes

It might sound strange but the way we obtain money can actually have an impact on what we spend it on. And there are several other, surprising factors that can make us more – or less – willing to part with our cash. Let’s take a look at what the research says.

Feel good, spend differently
Imagine you just got an unexpected tax refund or won some money on the lottery. It’s a happy day for you and your newly boosted bank balance. Now imagine instead a different unexpected windfall – receiving money from a sick relative. Your bank balance is still fatter but it’s a miserable way to come into some extra money. Would you spend the money differently as a result of how the windfall came about?

According to research published by the American Marketing Association in 2009, the answer is “yes”. A positive windfall – think of the tax refund – is more likely to be spent on a special something the recipient will enjoy; a hedonistic indulgence. But the money from the relative, finds the research, is more likely go towards something that is necessary; a utilitarian purchase that will help to remove feelings of guilt or regret.

In technical terms, the study adds a variant to mental accounting (the way we tend to separate money into separate “buckets” for food, shelter, transport and other expenses), which they call emotional accounting – or categorising money based on the feeling it evokes.

We like crisp, clean notes
Conventional wisdom will tell you that one authentic EUR 20 note is the same as any other. Each can be used to buy a EUR 20 shirt or to pay the babysitter for the same amount of time. But surprising research due to be published in the Journal of Consumer Research in 2013 found that we actually have a tendency to rid ourselves of old, crinkled money by spending it more quickly – and prefer to hold on to nice, crisp bills for longer.

In experiments, the researchers write, people tended to spend more with worn notes than crisp ones. The authors Fabrizio Di Muro and Theodore Noseworthy conclude – perhaps surprisingly – that “the physical appearance of money can alter spending behaviour”.

Feel the pain of cash
Don’t forget that paying with cash seems to affect us differently than paying with credit card. This is an important factor because unlike the emotional accounting or tatty bank notes, payment methods are something we can easily control.

A well-known method is to try a “cash-only” diet when trying to cut overspending. The idea is that handing over cash hurts more because we feel the money; we see it, touch it and notice its absence. Credit cards, on the other hand, separate us from this trauma. And the separation is widening with technology – from signing or entering a pin, to the modern “touch and go” payment facilities. As amazing as it sounds, the way we come by money and the way we physically interact with it can lead us to spend more (or less) or buy different types of things. Next time you’re about to splash out, take a moment to see if one of these fascinating factors is at play.

ShoppingEmotionCardsMental accounting

Have your say

Should banks incentivise you more to boost your savings?