Wednesday, June 11, 2008

Use cash, spend less

That we tend to spend more when we use a credit card than when we use physical cash, is stating the obvious. When we use cash, the ‘pleasure of buying’ is instantly weighed against the ‘pain of making the payment” and this forces us to pause a bit. With credit cards, the pain of payment comes much later, and the temptation of buying meets with reduced resistance.

Jonah Lehrer explains the physiological activity in the brain:

“What's interesting to me is the way credit cards take advantage of some innate flaws in the brain. When we buy something with cash, the purchase involves an actual loss - our wallet is literally lighter. Credit cards, however, make the transaction abstract, so that we don't really feel the downside of spending money. Brain imaging experiments suggest that paying with credit cards actually reduces activity in the insula, a brain region associated with negative feelings. As George Loewenstein, a neuroeconomist at Carnegie-Mellon says, "The nature of credit cards ensures that your brain is anaesthetized against the pain of payment." Spending money doesn't feel bad, so you spend more money.”

That’s why you should, right now, cut your credit cards (all eight of them) into small pieces and flush them down your toilet. Carry cash wherever you go.

A thing about cash. For some reason, I am more reluctant to part with a five-rupee note than with a five-rupee coin, although the metallic coin should, logically, give the impression of higher value than the paper note. I have this careless habit of leaving loose change on a table or desk, as the coins make the wallet a lot heavier. This is ok with Indian currency, but once when I was travelling in Europe, I counted the Euro coins that I had left behind in the hotel room. It added up to more than Rs 1000/- , a sum if available in the form of notes, I would safely deposit in a locker. I wonder if the note and the coin tickle different parts of the brain

I also wonder if I can sponsor a research on how to manipulate the insula region of the brains of my daughters, to trigger sharp negative feelings whenever they force me to take out my credit card...or cash.

6 comments:

Abi said...

Jonah's stuff is an interesting illustration that money-now is different from money-a-month-from-now.

Another interesting finding -- this time, about the difference in our perception between real-money (a dollar bill) and object-money (a coke can) -- is here.

BTW, a friend of mine would be interested in pursuing your idea about the insula region. He says it'll cost you a million rupees. Now, will that be cash or card?

Raj said...

Abi, thanks. Will pay cash. In coins.

Usha said...

Please let me know when you have too many coins. I will come and collect them as a favour to you - euros included.
Fathers brains are immune to any negative feelings towards their daughters. So sorry insula is not going to insulate you from that weakness.

Sundar Narayanan said...

this could be a case for Vilayanur Ramachandran..

who knows.. maybe this has something to do with the fusiform gyrus as well?

:)

email him. Who knows, he might pick up the research on this!

dipali said...

Which is why I try to only pay cash!

Raj said...

usha, will save up the coins for you. And, about the insula. Maybe, some work needs to be done on my brain.

Sundar, you are right.This is a subject right up VR's alley.

dipali, good for you. But, don't let the IT guys find you.