[Kwerks - #7] You might be spending more than you need.
Learn about how the cashless economy makes you spend more
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Its No Tips Thursday! but still there something you all must know in personal finance.
The digital economy is great and all, but silently it’s making all of us spend more. Know how?
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What is the Cashless effect?
This effect describes our tendency to spend more money when we are not able to physically see it. It means that we are more likely to make a costly transaction using a credit card or UPI, than if we pay it using cash.
Covid-19 has increased the usage of digital payments in the world. Many businesses started accepting digital payments in the fear of the virus spreading through the exchange of cash. Now, even though cashless transactions have helped greatly to reduce the spread of the virus, it also means that the cashless effect is more prominent today.
Why it happens?
Pain of payment is the effect we feel when we give up physical money, as we can feel the loss of it. This is much more painful than making a digital transaction, as we know how much money will be leaving from our pockets.
Why should we be more aware of it?
If we all were purely rational decision makers, any form of payment should have no effect on us. However, according to this effect, it is not the case.
Researchers at MIT asked some people to bid for a pair of tickets to a sporting event. One group was told they’d be paying with a credit card, and the other group was told they’d be paying with cash. The subjects in the credit card group bid up to 72% more for the tickets than those who were told they’d be paying with cash.
As we move on to a cashless society, it becomes much more important to understand how these changes will affect our consumer behavior. Therefore, even if we are not able to avoid these digital payment methods, being diligent about money can help us become aware of where and when we spend our money.