Out of sight, out of mind

Patrick Butler
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Money management today isn’t what it once was.

In many ways, our reliance on debit and credit now make hard currency relics of a bygone era. Online credit payments and Interac e-transfers have made shopping borderless.

For day-to-day expenses, our cash is now portable.

And without any bills or toonies to hang on to and to use as reference points, cash flow now often becomes abstract, with no definite knowledge of how much remains in the bank after every swipe. (That is, until the card’s declined or the e-bill comes at the end of the month).

Bills can be automatically deducted and paycheques can be automatically cashed.

Accessing money is easier, whether through ATMs or online banking apps. And cash can be dished out in a thousand different ways, whether remotely or in person.

Today, the physicality of money is missing. But with it goes some of our financial awareness.

According to Scott Rick, an assistant professor of marketing at the University of Michigan’s Ross School of Business, spending with credit “helps to anesthetize the pain of paying,” numbing us from the sting that makes us reconsider potential purchases and stray from shopping mall splurges.

In his Psychology Today column “Retail Therapy,” Rick says the “credit-card premium” is a combination of emotional and cognitive factors — from guilt-free PIN entries to credit-card limits.

Rick says swiping a card is psychologically less painful than physically handing over cash — a statement easy enough to relate to.

Spending $200 with a credit card makes a far less visual dent to our wallets than dropping a stack of $20 bills.

We take the same hit, but there isn’t that same instant remorse at the all-of-a-sudden thinner wallet.

Moreover, forking over cash often becomes a sort of game of proportions.

We cherish our bills, so that a reluctance to break them up can make the difference between buying an item or not.

Paying in bills carries the consequence of dealing with whatever loose change remains from the purchase, as well as the regret from reducing a $50 bill to a far less attractive couple of fives and a few nickels.

But with credit and debit, no such conflicts exist. Insert your card into a debit machine or type your card’s PIN, expiration date and security code into an online checkout system and you’ve made your purchase without worrying about the messy drawbacks of paying cash.

Rick says credit-card limits can also play tricks on our financial awareness, leading to poor purchasing choices and more misguided proportional analyses.

“Credit limits themselves, when salient, help to make purchases appear small,” Rick said. “A $1 candy bar may seem less expensive when compared to $5,000 in available credit than when compared to the $5 bill in one’s wallet.”

In the same way as paper money does, credit limits manipulate how we substantiate expenses, this time making purchases seem less pricey than they might appear when paying cash.

No doubt, today’s digitized financial system, despite its many conveniences, has its pitfalls.

The flip side of the convenience of not worrying about having money on you or having to pay for something in person is that we somewhat cut ourselves out of a fully conscious exchange at debit machines and online stores.

The funds are transferred, but there is little tangible impact.

The awareness of having spent money, and how much, is sort of glazed over, with a painless swipe and momentary PIN entry.

And with that, we relinquish some of our financial autonomy. And we pay dearly for that.

Organizations: University of Michigan, Ross School of Business

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