Cashless Payments Are Making People More Prone To Overspend, Finds Study

With digital payments becoming more and more common in developing and developed countries, the spending behaviour of people has significantly changed. A study conducted by a team from the University of Adelaide and the University of Melbourne in Australia has concluded that cashless payments are driving people to spend more than before. The researchers conducted the study by doing a meta-analysis of 71 previous papers and by observing the spending habits of people across 17 countries. They found that the convenience of spending has made people more prone to spending on luxurious items that are mostly unnecessary. 

“To prevent spending more than planned, we recommend consumers carry cash instead of cards whenever they can, as it acts as a self-control method,” said marketing researcher Lachlan Schomburgk from the University of Adelaide, as per Science Alert

“When using cash, people physically count and hand over notes and coins, making the act of spending more salient. If nothing is physically handed over, it’s easy to lose track of how much is spent,” he added. 

In the study, researchers noted that the link between high spending and cashless payments has been visible for a long time. However, they added that it is the first time that the spending behaviour of people has been tracked at this scale. 

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The difference in spending was “small, but significant” the researchers said. It was greater for “conspicuous consumption” spending, which is buying items that signal status – so luxury clothing and jewellery, for example. The team also observed that digital payments do not affect tips or donations. People spend money on donations as much as they used to with cash, they added. 

“Against our expectations, we found that cashless payments do not necessarily lead to greater tips or donations, in comparison to cash,” said Mr Schomburgk.

Further, the team of researchers found a link between more positive economic conditions and a greater cashless effect. They also found the cashless effect has gotten weaker over time, suggesting that as cashless payment methods have become more common, they have less impact on consumers. 

“The transition towards a cashless society seems almost inevitable. I believe this research is crucial because it shines a light on an overlooked aspect of this transition: how payment methods influence our spending behaviour,” said Mr Schomburgk. “This understanding can help empower us to make more informed purchasing decisions,” he added. 

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