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,