Some worrisome news came out last week concerning the way we pay: a study from Juniper Research predicts more consumers will be using their phones to pay for goods and services. In fact, mobile payments are expected to nearly triple to $670 billion worldwide by 2015. That news coupled with the fact that the federal government has decided to print fewer bills, means that when it comes to saving money, consumers will need some extra willpower.
As the New York Times put it last week, “cash is in decline.” It’s unfortunate news for the budget-conscious since for years studies have revealed that a commitment to cash curbs spending to the tune of about 20% over a year. Credit cards and electronic payments, on the other hand, entice shoppers to spend more than they should. That’s because paying with cash hurts, psychologically speaking. In talks with marketing professors and behavioral economists, I’ve learned that when consumers use cash the brain recalls the action much more intensity. Seeing the bills leave your wallet and thinking “this is costing me $50 dollars” can be painful—and that is enough sometimes to think twice about the purchase. On the other hand, swiping a credit card—with a $10,000 limit—doesn’t have the same impact.
[Related Article: When Using Plastic, Consumers Spend More]
New mobile technology, such as Near Field Communication or NFC, that allows us to pay using our phones won’t help matters, while convenient, can lead to breaking the budget. In fact, Citibank conducted an experiment in Bangalore on mobile payments and concluded that “the number of transactions by customers…were about six times what they would make with a card.” Researchers believe the data suggests that the contactless payments replaced either competitors’ cards or cash transactions, but I can’t help but think it was due to people simply spending more, as well.
Now, I’m not against credit cards or electronic payments (obviously, as a contributor to this website) but for those who are struggling to save, cash is proven to be the better way to spend. Even if your iPhone can someday replace your wallet…that doesn’t mean it should.
[Resource: Get your free Credit Report Card]
Image: Phil Roeder, via Flickr.com