Love hurts, but so does shopping. There's emotional pain when we pay for something with cash as well as debit cards as we feel the money leaving. But that pain is often non-existent when we use credit cards, behavioral economist and Duke professor Dan Ariely explains in the accompanying video.
Watch the video below for the full discussion.
Although debit cards work similarly to credit cards, people experience more pain when they swipe a debit card. That's because they know the money is leaving their account right away, so they tend to spend less, says Ariely, author of (most recently): Dollars and Sense: How We Misthink Money and How To Spend Smarter.
"Payment is not just about payment, it's not just about the money we give up. It's also about how salient it is," he says. "When payment is more salient, we spend less, and when it's less salient we spend more." Salient is a fancy way of saying how much we notice (or don't notice) something.
"For example when people pay with a check for their electricity bill versus putting it on automatic deduction...they end up consuming more electricity," Ariely explains. "Why? Because once a month you don't get these statements that say how much it is and then you shout at your kids to turn the lights off. You have less saliency, less pain of paying." (See also: Dan Ariely Explains Why You're Not Thinking About Money the ‘Right' Way)
The recent move away from cash to digital payments does concern Ariely, because they further remove the friction (and pain) from paying. But all is not lost, he adds, suggesting Electronic wallets like Apple or Android Pay have the potential to help people to think about opportunity cost.
"You could even create an electronic wallet that would make you physical pain, with maybe some electrical shocks or something like this every time you spend money. It doesn't mean electronic means no thinking, [though] that's the direction we're going right now," says Ariely. "I'm hoping that we will take advantage of this incredible movement in which things becoming digital, more free, more flexible and we can design things in a better way...meaning for better long-term thinking, not just for better short-term spending."
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