Physical money has existed since the dawn of modern economy but its role is vanishing as new methods of payment emerge.
With the digital revolution offering ever-faster and more convenient means for settling transactions, cash seems to have no future. Non-cash-payment options have been growing rapidly in recent years. Credit cards, online transfers and direct-debit payments are already well established. And thanks to contactless payment that is deploying rapidly on bank cards, smartphones and connected watches, opening your wallet, giving a banknote and checking the change back or looking for small coins to pay the exact amount will be soon things of the past.
If cashless transactions are set to transform the way we shop for the better – increased security and reduced cash-handling costs -, they can also have a negative influence by potentially altering our perception of spending and transforming our shopping habits. Research into the “pain of paying ” suggests that 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 or using your fingerprint.
People tend to judge the value of an object (such as a coin or a banknote) from its actual size, shape and colour. A recent research, published in the Journal of Consumer Research, has even shown than we are more likely to use worn notes than to pay with brand new notes because it’s less painful. This money illusion explains why paying with cash – in other words, handling a material object – has a fundamentally different psychological impact from simply waving a contactless card or mobile payment system over a scanner.
By avoiding the sense of physical loss associated with handling material and tangible objects, electronic payments seem to disinhibit our buying impulses and encourage us to spend more money. This trend will be reinforced in the years to come with the rise of contactless cards and mobile payments which make transactions substantially quicker and easier – unless the same institutions that provide cashless payments support customers in thinking about money the right way, argues top researcher Dan Ariely in this video ..
Sooner or later, our society will be entirely cash-free. It is time to change our consumption habits, review our relationship with money and possessions and – last but not least! - teach our kids how to manage money wisely. Teaching our children to be good at money is the best way to empower them to stay a step ahead in life… and later in business!