Does Carrying Big Bills Save You Money?

benjamin-franklin-bill-bigOn 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

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