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When cash breeds impatience

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While cash is a consumer's friend in spending situations, it turns against him in saving or investment decisions

Prior research on the psychological "pain of paying" has proved useful for many consumers by showing that even when price tags are held constant, paying in cash is more painful than paying with less tangible forms like credit cards, which in turn helps consumers spend less.

This has resulted in the now-popular "cash diet".

Diverging from prior work, my research argues and subsequently demonstrates that cash is not always king such that cash may sometimes backfire (compared to less tangible money in the form of cards) and hinder financial welfare.

In the three studies I conducted with my co-researcher considering tradeoffs between smaller-sooner and larger-later rewards, we found that paying people in cash fosters greater impatience making people more likely to forego lucrative financial rewards.

For instance, one of the studies demonstrated that whereas only 49 per cent of its survey participants compensated in cash decided to wait for a larger-later reward ($7 a week later compared to $5 immediately), 78 per cent of respondents compensated via card opted to wait for a larger-later reward.

Our explanation for this key finding is as follows.

Letting go of money people can have now to reap financial rewards later (accrued interest) is more painful psychologically when the money to be given up is cash than when it is via card.

In turn, this higher psychological pain causes increased impatience (that is, a preference for smaller-sooner rewards).

Overall, while prior research shows that cash is a consumer's friend in spending and shopping situations, we highlight that it paradoxically turns against a consumer in saving/investment decisions by reducing his willingness to wait for later, more lucrative rewards.


In this context, cash breeds impatience.

Our research based on the "pain of parting from money" offers a logical way to explain not only why cash helps when spending, but also why cash may hurt investment and saving.

This insight is novel in that it refines the wisdom widely derived from the "pain of paying" paradigm (that cash helps "save" money). Despite the widespread use of cashless payment tools, the use of cash in daily life remains more common than one might think.

Contributing to the practice is the very means by which people are paid.

Globally, 1.8 billion workers (about 50 per cent of the labour force) are paid in cash, according to the Organisation for Economic Cooperation and Development.

Given the sheer magnitude of people navigating life and making financial decisions primarily (if not exclusively) in cash, our results suggest that much of the world's workers may be at a chronic disadvantage and vulnerable when it comes to personal saving and investment.

Lack of savings is a rampant issue with dramatic consequences.

For illustration, 36 per cent of young Singaporeans have no savings at all (according to EnjoyCompare.com, a Singapore financial portal).

And this problem is bound to increase in future years since greater life-expectancy will mean healthcare needs and costs skyrocket.

From societal and policy-making standpoints, then, understanding the factors that increase or decrease consumer saving such as the ones examined in my research is essential.

The writer is an assistant professor of marketing at Nanyang Business School, NTU Singapore. This article was published in The Business Times last Friday.