Does Carrying Big Bills Save You Money?

Posted by Debt Destroyer on April 7, 2009

On more than one occasion I’ve mentioned my love of public radio, so it should come as no surprise that a piece I heard this past Sunday made my wheels turn.

All Things Considered ran a story about a study which found that people will spend less money if they carry around big bills rather than smaller ones.

The idea was that it is psychological more painful to spend a $100 bill than it is to spend five $20′s.

Does this sound familiar?

It should, because this is the same logic behind the idea that using cash will save you money over using credit.

I instantly found myself in agreement with this idea. I know it used to be true for me. If Ben Franklin somehow found his way into my wallet, he was going to be there for awhile.

I had a hard time spending a $100 bill. I don’t know why, I just did.

Maybe it was because I remember seeing clerks turn down customers who tried to use $100′s. Or maybe it was because I very rarely would come into contact with one myself, so I was in no rush to get rid of it.

But notice I said I “had” a hard time. I’m using the past tense because I have overcome my inhibitions of parting with big bills. And I owe it all to the envelope system.

Just yesterday me and my four year old daughter hit the grocery store and racked up a $97 bill. I just pulled a $100 out of my pocket and let my little girl pay. The clerk got a kick out of it. I guess you had to be there.

Basically, I agree with the report that people will spend less if they only carry big bills, but I think that effect will lesson as time goes on. After a few months I think people will get use to the idea of dropping $100′s and their spending will return to normal.

What do you think?

Is there anything to this idea or was NPR just trying to fill up a few minutes of airtime with nonsense?

Until next time,

-DD

» Filed Under Cash, Psychology of Spending

Trackbacks/Pings

Weekly Round Up | Master Your Card on April 10th, 2009 10:38 pm
Festival of Frugality - Last Minute Edition | StretchyDollar on April 14th, 2009 1:32 pm
Remember Traveler’s checks? Do People Still Use Them? | The Happy Rock on April 25th, 2009 11:08 pm
We Spend Coins Faster than Bills | The Happy Rock on May 18th, 2009 7:57 am

Comments

8 Responses to “Does Carrying Big Bills Save You Money?”

Kristy @ Master Your Card (21 comments.) on April 8th, 2009 12:58 am

No, I think there’s something to it and I’m not sure I agree with the effects lessening in time. I also have a hard time spending a $100 bill as opposed to five $20′s. But, that’s because my brain compartmentalizes the 20s into 20s rather than aggregating the total. So, when I spend the $100 bill, I know I’ve spent $100. But, I sort of view the five $20′s as just having spent $20 – even though it was $100. Mathematically that doesn’t make sense, I know. But, psychologically, I spent less because the bills were smaller – though in reality, we may spend more that way. It’s an interesting concept.

In dealing with people and cash everyday, they repetitively tell me to give them larger bills because they’ll spend it less quickly. So, this perception, however self-induced, is still around. Unless something drastically changes the perception, I think it will be around for awhile to come.
Atniz (3 comments.) on April 8th, 2009 8:58 am

Definitely. I like to carry big bills. It is easy and not huge in size.
Ron Russell (4 comments.) on April 8th, 2009 8:12 pm

This is very true. It easy to turn loose of a five or a ten, but to turn loose of the big hundred dollar bill thats another story. Great idea. Never thought about it.
Michelle on April 15th, 2009 10:23 am

I’ve found that many of the places I’m prone to impulse shop or spend unbudgeted money won’t take $100s – grabbing fast food, buying snacks at the convenience store, Coffee shops, my mom-and-pop Rexall pharmacy…so knowing they can’t/won’t break that big bill is a deterent from even going in the shop!