Blog — Sisters for Financial Independence

I’ve been thinking lately about all of the ways we can pay for something without using cash and there’s a lot. I’ve also been thinking lately of the careless way I sometimes pay for items using a credit card or Apple Pay. Sometimes, barely glancing at the receipt or the final bill.

Pain of Paying

In Behavioral Economics, there is a concept called the Pain of Paying. It is the idea that we experience some version of pain when we pay for something. When we pay with cash, we have to give up something, in this case, money that we will never see again so there’s a moment of hesitation when we do it. It’s just a moment and many of us will probably not recognize it. When we use cash, we notice, touch, grab, sort, count the money and in the process we feel a loss.

In this day and age though, the pain of paying has greatly declined due to the various mechanisms that are available that allow us to pay for our purchases. Though the pain of paying still exists, it has been lessened thanks to the creation of payment alternatives such as credit cards, automatic bill pay, and e-wallets. If we think about it, when we pay with anything other than cash, we don’t necessarily experience a loss. We get our credit card back after we pay. Credit cards separate the time of our consumption to the time of payment which makes it easier to even spend more. If we pay using Apple or Google Pay, it’s technically just a tap. No giving up of anything. Same thing when we use Venmo or Paypal. Money exists in the ether and we don’t necessarily feel the loss of money when we tap, tap to transfer and send payment on our devices.

What is the pain of paying? How can cash curtail spending?

There’s apparently a formula to the Pain of Paying from the book Dollars and Sense: How We Misthink Money and How to Spend Smarter:

Pain of Paying = Time + Attention.

The more time we put into noticing the payment, the more painful it is.

Three Payment Types

From that same book, they also cover the 3 types of ways we pay for a product or service and how each one affects our enjoyment of it.

Pay Before Consumption

This is by far the most common way businesses have gotten us to pay for something we may not need. Amazon does this with their Prime membership. Instead of paying for shipping at each order, we pay for shipping at front (technically) which makes it easier for us to order items because hey, shipping is free. Subscriptions boxes work in the same way. We pay a set amount each month before we get the product. Most travel works in this way because we have to pay our flight and hotels at the beginning so by the time we get to our destination, we don’t have to worry so much about paying because it’s already been taken care of. Paying before leads to more enjoyment.

Pay During Consumption

This is a rarity in today’s world. Paying during consumption makes us fully aware of the cost of what we are consuming. It’s like watching the taxi meter inch up as we get to our destination. Of course, if you use Uber or Lyft, you barely see the final amount of your ride and since you don’t exchange money, Uber feels more enjoyable in a way. If you were in a taxi paying cash, you may think twice about getting off a block or two earlier so that you don’t have to pay the extra few dollars. (I’ve personally done this so I wouldn’t have to break a large bill.)

Paying After

We have a hard time rationalizing the future so we value future money less so we are indeed OK with paying for things in the future. This is why credit cards work so well. With credit cards we pay out into the future, not now and it doesn’t hurt that much.

Cashless Business

In New York, there is a bill currently in circulation to stop business from going cashless. There’s been a rising trend in NYC for business to only accept credit cards or pay through apps, but we also have to look at the other side of the coin for this argument. While credit cards seem to make transactions easier certainly for businesses, they also limit certain groups from being able to carry out their own transactions. “The cashless marketplace sends an exclusionary message — that the impoverished, the homeless, the underbanked, the undocumented need not apply,” he said in an interview. “I think we need to ask ourselves as a city, is that the kind of de facto discrimination we’re okay with sanctioning in the marketplace?” Something to think about as well in the argument for using cash. While cash can help curtail spending for most folks, for others, it is the only payment method available.

It’s also important to remind ourselves that doing cashless means being tied to something else as a means of currency. Whether this means constantly being tied to a credit card, which can get dangerous especially if you don’t manage spending and credit well or it can mean being tied to a device that’s also constantly monitoring your activity and purchases.

What Does This Mean For Me

Admittedly, I am a heavy credit card user (no debt), but I use it for everything. So knowing what I know about the Pain of Paying, I am going to put myself on challenge for one month in the next year to use only cash. Here’s how I will break this down.

Review and analyze my spending from the past month and create categories for spending.
I will withdraw money in the range of that category and use an envelope system to allocate funds. Interestingly, the envelope system also provides a slight barrier to spending because you actually have to think about where the funds are coming from and right away you see how much money is left in that category
Try this experiment out for a month and see how it goes. I always like to carry credit cards “just in case”, but I’ve never encountered a scenario where “just in case” was necessary" so for this challenge, I will leave ALL cards at home and remove cards from Apple Pay. This will absolutely force me to be diligent about what I spend.
For things online, I will have to find an alternative. Perhaps, it may be waiting a month to buy said item or find it locally.
Bills such as electric and internet I will keep automated since they are pretty consistent every month.

Age of Money

In the book You Need a Budget and from the same site, they talk about the concept of the age of money. It essentially points to the concept of how long do you keep your money before it is spent. “Age of Money tells you, on average, how many days you let your dollars sit before having them do the jobs they’re assigned.” - ynab.com For the average American, this is 0 and sometimes negative where households anticipate the next paycheck or put things on credit to make ends meet. Catching up can be difficult, but not impossible. I potentially want to see how doing a cash only experiment affects the Age of our Money. Right now, we are probably around 60 days.

Up for the Challenge

Are you up for the challenge? Would you be open to doing a cash only month? If you’ve got your finances handled, I think this is a still a good experiment so that you can feel the pain of paying and adjust spending. It also will allow you to see which businesses are inclusive to all types of payment options. You may notice during this experiment that 3 out of the 5 places you frequent don’t accept cash which can be unfair for people that don’t have credit cards. It may also help you question how the new methods of payments like Venmo dilute the importance of cash and money. I mean, right now, it sometimes feels like we just need to blink to pay someone and that is a pretty scary thought.