What is... | July 4, 2013

What is the pain of paying?

After dinner, a couple get the bill for the meal and pay for it by swiping their credit cards. They don’t give much thought to how much they spent – at least not until the statement arrives weeks later.


Research into the “pain of paying” suggests the physical act of handing over money prompts more awareness about spending, and parting with cash may even “hurt” a bit more than swiping a bank card. Being aware of this thinking trap is an important step to neutralising its negative effects – and may even allow people to use positive aspects of it to their advantage.

The interaction between paying and consuming
Back in 1998, academics in the United States Drazen Prelec and George Loewenstein published a famous paper that examined the pain of paying. They argued people feel differently about payments when there is a gap between the time the product is bought or experienced and when it is paid for. It works to people’s benefit and disadvantage. They wrote that credit cards alter the point at which the “pain” of paying happens – making it tempting to enjoy goods or services immediately only to feel the pain when the bill arrives in the future.

In a 2008 paper called Monopoly money, academics argued the pain of paying was affected not only by timing between payment and consumption but also by the mode of payment. Specifically, paying by non-cash alternatives such as gift tokens or credit cards was associated with higher spending than using cash. The pair argued the cause might be that it is difficult to think of cards and tokens as similar to cash, and people treat them like Monopoly "money".

A study published in the Journal of Consumer Research in 2010 examined actual payment records from a large retail outlet and found people using either credit or debit cards while shopping tended to spend more on impulsive purchases compared to those paying by cash. An interesting aspect of this study was that those who had been shown in the past to have greater control of their spending (tightwads rather than spendthrifts) were actually more susceptible to weakening and spending more when using credit cards. This suggests the effects of reducing the pain of paying affect even those who keep a close eye on what they spend.

Can you feel it?
ING’s own research suggests many people may not actually perceive this “pain of paying” effect. But these emotional traps can occur, even if people are not aware they are at work. The ING International Survey Financial Empowerment in the Digital Age found only 33% of about 12,000 people in Europe felt less guilt about splashing out when paying with their bank card rather than cash. In Turkey, it rose to 51%, while the survey low was Austria at 19%. The result might highlight differences in attitude, awareness and behaviour between cultures.

I’ll pay ahead of time, thanks
If how we pay can evoke different emotions, it might be possible to use it to your advantage to boost happiness.

Behavioural economist Dan Ariely suggests that paying at time of consumption – such as the couple paying cash for dinner – increases the pain of payment. The credit card adds distance because the bill arrives weeks later. Ariely introduces another idea to reduce the pain (and eliminate the temptation to spend money not yet earned): pre-paying. For a set-price meal or for flights and accommodation on holiday, an idea is to pay ahead of time to allow a chance to simply relax and enjoy the event free from the worry about paying.

This article is related to the ING International Survey:

Mobile Banking 2013

Mobile Banking 2013

July 1, 2013

Are the new technologies of mobile banking, contactless payments and social media changing the way people bank? This ING International Survey explores the answers of almost 12,000 people in 12 countries, in what is...

SpendingShoppingEmotionDan arielyCards

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