Type of cash carried influences saving and spending, finds study

Canadian cash, bills and coins

New research from York University’s Schulich School of Business shows that the type of cash people carry – coins or bills – determines how much they spend.

Nicole Mead
Nicole Mead

The findings are contained in a recently published paper in the Journal of Consumer Psychology titled “When cash costs you: The pain of holding coins over banknotes.” The article was co-written by Nicole Mead, an associate professor of marketing at Schulich, together with Jay Zenkić from Deakin University in Australia and Kobe Millet from Vrije Universiteit Amsterdam in the Netherlands.

“As a starting point in our research, we thought that some cash is annoying to keep because of its physical characteristics – for example, bulky coins – which we term the pain of holding,” says Mead. “This pain, in turn, may drive consumers to spend more money as people try to rid themselves of annoying stimuli.”

The researchers conducted a field experiment with poor labourers in rural India and two more experiments with American participants. They tested their hypothesis by giving people coins or equivalently valued banknotes and then measured their pain of holding and subsequent spending. The research findings showed that carrying coins increases spending as a result of this “pain of holding” factor, says Mead.

Why does it matter? According to Mead, their research findings “suggest that the pain of holding contributes to under-saving, which may be especially problematic among vulnerable populations who rely on cash.”

The researchers also provided some practical recommendations for people wishing to encourage savings or spending. Mead says that organizations and governments could encourage saving – as well as reduce administrative and minting costs – by returning change to consumers digitally rather than in cash.  

On the flip side, notes Mead, organizations or businesses interested in promoting greater spending or donations could provide consumers with more coins as part of their change. As an example, Mead says that a museum seeking to increase donations could provide more coin-based change for tickets to encourage donation.

Bottom line, says Mead, is that consumers spend more when carrying coins instead of equivalently valued dollar bills because coins are more of a pain to hold.