Strategy. Innovation. Brand.

phone payments

Are You The Boss Of Your Money?

Quick! Where's my phone?

Quick! Where’s my phone?

Several weeks ago, I asked the question, “Are You The Boss Of You?” and highlighted the many hidden factors that influence our thinking. We may think of ourselves as rock-ribbed, clear-headed, independent-minded thinkers but – in most cases – we’re not.

But even if you’re not the boss of you, might you still be the boss of your money? The simple answer is: probably not, at least not always. The longer answer is: it’s about to get worse.

Why wouldn’t you be the boss of your money? Because most of us don’t use money. Rather, we use substitutes that create physical, emotional, and psychological distance from our money. We don’t think of it as money; we think of it as credit.

Numerous writers and scholars have investigated the relationship between credit cards and consumer behavior. The relationship is sometimes subtle but the general thrust of the research is clear: credit cards cause us to spend more. Here are some examples:

  • The credit card premium may be as much as 100%. In other words, people may pay up to twice as much when paying by credit card compared to paying by cash.
  • How You Spend Affects How Much You Spend” – it’s the title of a research article but it’s also a good summary of the trend: if we spend anything other than cash, we’ll probably spend more.

Credit cards help us spend more because they remove us from the sense of cold, hard cash. Credit cards are elastic; they can expand to match our needs. Cash is anything but elastic – if you’re out, you’re out.

Why might the situation get worse? (Worse from a spender’s perspective; better from a seller’s perspective). Because we’re taking another step away from the tactile sensation of cash. The arrival of pay-by-phone systems adds more psychological distance between us and the world of hard-earned money.

With pay-by-phone systems we’re two steps away from cash. Step 1: We use the phone to pay for something. Step 2: We use a credit card to pay off the phone bill. Further, we can remove the physical nature of payments. With near field communications, we don’t even need to take the phone out of our pocket. We can just stand near the sensing device. It’s easier and more conceptual than reaching for your wallet.

So, is this a bad thing? Not necessarily. Credit helps the world go round. But it’s another example of how unseen influences can affect our behavior. I suspect that we’ll need to improve consumer education and teach more classes on critical thinking. In the meantime, I’m going to buy some junk food.

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