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The death of cash is costing you a lot of money. Unfortunately it is that simple, and the ears of those trying to save for a house should be pricking up right now.
Your propensity to spend, particularly on small and non-essential items, could be upwards of 40-50 per cent higher if you favour cashless payment methods rather than old-fashioned notes and coins, according to Sydney University professor of marketing and behavioral psychology Donnel Briley.
A subconscious detachment from their money exists in most people when they “tap” or use their mobile phone to pay, the academic said. And considering the growing ubiquity of non-cash payment options, those trying to save for a home are likely oblivious as to why their progress is so disappointing.
ATM use has dropped 22 per cent in the last five years in Australia, according to the Australian Payments Clearing Association. Photo: Paul Rovere
“There’s good empirical evidence that people spend more money when they don’t actually have to use cash, and that goes across different alternative forms of payment,” Professor Briley told Domain, adding that people’s inclination to spend on non-essential items can be lifted by up to 50 per cent if they opt for cashless payment.
The reason we can’t control ourselves? If we’re not handing over cash, it doesn’t feel real.
“In the categories where spending increases are most likely – small purchases, or hedonic purchases – I would expect that the propensity to spend is increasing by at least 40-50 per cent.”Professor Donnel Briley, USYD
“We have so-called ‘mental accounts’, and we spend out of those accounts,” Professor Briley said.
Evidence suggests people spend more money when they don’t to use cash. Photo: Glenn Hunt
“But there’s good evidence that when people are spending in cash the mental accounting is quite specific, and they do think about the fact they’re making a trade-off … that they’re spending $20 here and they cannot spend it on some other alternative.
“When people are spending electronically, they are less likely to make that categorisation in terms of those mental accounts.”
Cash is unquestionably dying a slow death in Australia, with Reserve Bank estimates showing more than 80 per cent of consumer payments by value are now made without it. Meanwhile ATM use has dropped 22 per cent since 2011, according to the Australian Payments Clearing Association.
A new cashless retail sales index from NAB, which draws from the bank’s two million cashless transactions per day, also shows overall non-cash spending increased by a relatively-modest yearly rate of 5.6 per cent in June, compared with peak annual growth of over 12 per cent in late 2015.
But cashless spending in cafes, restaurants and takeaway food took off 19 per cent in the period, while supermarkets also outperformed, according to the index.
Within hospitality, the removal of minimum purchase prices in many venues has seen the number of cashless payments grow significantly, with cafes and restaurants showing a more than 21 per cent jump in year-on-year percentage gains.
Meanwhile the rise of Uber Eats, Deliveroo and other food delivery services have helped the takeaway sector gain almost 15 per cent in the period. Considering these sorts of services are largely used as an unnecessary added comfort, the growth fits in Professor Briley’s assessment that the propensity to spend more occurs most in “hedonic” areas, or those that make us feel good.
Interestingly, newspaper and books, and footwear, were noticeably weak in the NAB data, which chief economist Alan Oster said “is consistent with a challenging environment for retailers, with demand from consumers subdued amidst weak wages and income growth”.
Those small businesses benefit thanks to that increased propensity to spend but banks are also happy to support the trend – cash is expensive to store, secure and transport and makes tracking purchasing trends almost impossible.
Then there’s the data play – the more Australians pay without cash, the more the banks can collect information about people’s habits and finances and potentially tailor products to suit it.
So with all that in mind, is going against the flow and opting to pay in cash a good money saving technique?
“Yes. Absolutely,” says Professor Briley.
“To the extent possible, taking cash out at the ATM at the beginning of the week and having a specific budget for spending, and sticking with it, is the best plan.”