The Mystical Qualities of Cash

I’m a huge fan of Dan Ariely‘s.  Seriously.  I find his books on behavioral economics (like Predictably Irrational) fun and fascinating.  But one of his theories that I really can’t seem to get behind and incorporate into our lives is the idea that cash is more painful to spend than credit cards.

It seems to be one of Ariely’s favorite theories and he’s even made a slightly ridiculous little video about it.  Check it out.

I’m willing to concede that Mr. Ariely, the expert, is probably correct on the average, but here in the PoP household, cash takes on a weird sort of mystical quality with its ability to appear or disappear (though let’s be honest it’s more likely the latter) without anyone being aware.


Let’s Look At An Example

Take a recent review of our mint transactions.  (We try to do these weekly to check in and make sure we’re both on the same page.)

It took about 1 minute to review all the charges from the previous week… except for one charge.  It was an ATM withdrawal of $60 from Mr PoP’s ATM card from a couple days earlier.  Since I like to categorize cash withdrawals to make our personal income statements accurate, I asked…

Mrs PoP:  What’s was this $60 in cash you pulled out for?  

Mr PoP:  I pulled out $60?  

Mrs:  Um… two days ago?  Unless someone stole your card and used it for just $60 at an ATM.  


Mrs:  Haha… really?  No recollection at all?  =)

Mr:  Wait, I got it!  I needed $50 for a deposit for something my dad wants to get when he’s down in FL in a few weeks.  

Mrs:  Okay, that’s cool.  And the other $10?  

Mr:  (Checks wallet)  I have $7 left.  No idea where the other $3 went.  

… later … Mr PoP sets $7 down next to Mrs. PoP

Mr:  You should take this.  It’ll disappear otherwise.  

I think we categorized the $50 as shopping, and went out for ice cream with the other $7 so called the last $10 eating out.  But the classifications aren’t really the point.


Our Cash Memory Is VERY Short

It’s not just Mr. PoP.  I’m the same way.  I earned a fair amount of money babysitting in high school, but only ever deposited the checks.  Those were easy to drop into my bank account and save.  The cash on the other hand (and boy there was a LOT of it – at least in terms of what I had in the bank at the time), I have no idea where it went.  There were a fair number of Wild Cherry Pepsi’s and bagels from the school cafeteria, and I remember that someone stole a $50 from me.  (I had been saving it since I thought it was cool to have.)

Once I started getting paid via direct deposit and using debit and credit cards exclusively, all of the sudden there was a lot less waste in my spending (and not coincidentally fewer lbs around my midsection).


Our Credit Memory Is Long (And Getting Longer By The Day)

In contrast to cash that we can forget where it went in (what feels like) a matter of mere moments, our spending on cards is being tracked and archived in our mint account, which has been active since 2007.  That’s almost six years of transaction history; not bad when you consider we’ve only been married for four years.

Yes, there are other benefits to using cards, especially rewards cards when you’re not carrying a balance or paying interest.  But the biggest benefit for us is the auto-magic tracking whenever we use cards instead of cash for our spending.  The cash back rewards are just a bonus.


Know Thyself, Especially When You’re An Outlier

Reading some of Dan Ariely’s stuff, he makes it sound like we’re complete outliers in this sense.  And with companies like Target offering 5% off all the time for a branded debit or credit store card, it’s clear that those companies feel like those that spend with cards (and branded cards in particular) buy a higher volume of merchandise to make the discounts worthwhile.

But from our spending history and patterns, we know that cash has a certain “poof” quality in our hands feeling more like money that’s already been spent (and thus who cares how it’s wasted) in comparison to money that we know is going to flow immediately through to mint and be tracked.  So instead of trying to fight it and apply advice of experts like Ariely and Dave Ramsey that preach the “use cash” gospel, we’re just going to go with what works for us.

It does, however, make me wonder…


How much of an outlier are we in the pf community for cash disappearing?  What’s your preferred payment method and why?

91 comments to The Mystical Qualities of Cash

  • Good points! It’s interesting to read your thoughts on this debate. I agree with you when it comes to “petty cash” for sure, it happens to me too, when I have a few bucks in my wallet. But in those cases I think I’ve subconsciously decided not to track it. Like the petty cash is “off the radar”. I have to think that if ALL my transactions were cash I would be better at tracking them, but I don’t know that for a fact!
    I just wrote a post last week about whether credit cards contribute to over-spending. My wife and I are happy debit-only users, which is our happy place.
    FI Pilgrim recently posted..Link Day – A Few Faves From This WeekMy Profile

    • We use cash strategically when we want to not track it, too. Like vacations. We take cash out and don’t care where it goes as long as we’re having a good time!

  • This is exactly why we don’t carry cash….we spend it! It’s so easy for me to spend a few bucks in cash, but I think it’s difficult to put a $2 purchase on credit. I usually spend cash on a fancy coffee or something for my kids =/
    Holly@ClubThrifty recently posted..Operation Frugality: Save Money by Eating Old FoodMy Profile

  • I try not to have cash in my wallet because as soon as it’s there I might as well just light it on fire because that’s how quick it will be gone. Plus I never have better than a vague idea of where it went. Credit cards are the way to go for me, and it’s even better since I can build up cash back or travel rewards.
    JC @ Passive-Income-Pursuit recently posted..Dr. Pepper Snapple Group (DPS) Dividend Stock AnalysisMy Profile

  • Haha, that video is pretty funny. I’m all credit cards and I’m the exact same way with tracking cash. I barely ever use it and when I do I’m just not very good about remembering exactly what it was for. I love cards for a lot of reasons, but convenience is right at the top of the list. And as long as we keep tracking our spending and making sure it’s aligned with our goals, I’m not too worried about it getting carried away.
    Matt Becker recently posted..The Mythical $12,000 BabyMy Profile

    • I liked how the guy really pondered his coffee after paying cash for it. Like it was some big philosophical dilemma and he had to figure out if he was really happy with his coffee .

  • We almost never have cash. It’s all cards. Its just more convenient and we get the airline points. Also, its nice to have the record.

    It cracks me up that you put Bitcoin in your little survey! I am intrigued by them, but probably would never actually buy one.
    Mr. 1500 recently posted..Luke Poopwalker: The Bowels Strike BackMy Profile

  • I’m not good at tracking cash as I so rarely get receipts if I do. It’s so easy to spend a ton of cash without knowing where it goes. This is why if i pay for a dinner and folks at the dinner give me cash for their portions, it’s not really the best idea as I can go through that cash so fast!
    Tara @ Streets Ahead Living recently posted..Monday Morning Rant — Is it that hard to take out your trash?My Profile

  • Me too. I suspect there may be a generational difference or something. I find it more painful to get out my credit card.

    I mean, I know they hooked up sensors to people and stuff, but it just can’t be true for everyone. Cash runs through my fingers like water, so I just don’t care it around.

    Re: the few studies that show people spend more with cc than with cash, I’ve always wondered if that’s just a thing where you spend more conditional on spending anything. When I have cash, I don’t spend more than I have, but I also have a lot more opportunities to spend. With credit card, I’m more likely to spend more when I do spend, but I don’t use it in the vending machine etc. Also if I were just using cash, I’d take more cash out and I’d feel like I should spend it all, but with credit card I can just spend what I want.

    I’ve obviously thought about this topic a lot.
    nicoleandmaggie recently posted..Confession: Sometimes the checkbook doesn’t balanceMy Profile

    • “When I have cash, I don’t spend more than I have, but I also have a lot more opportunities to spend”

      Yes! Like the cafe in our office building lobby. Paying with a card is a PITA since they have minimum charges, so instead I don’t buy a cookie. With cash, I might buy a cookie more (read: too) often.

  • Cash is one the easiest things to lose because it goes so quickly. I am the same way when the bf takes some cash from the ATM. I am immediately like “where did it go?” That is why I always deposit cash when I have it.
    Debt and the Girl recently posted..Orange is the New AwesomeMy Profile

    • We try and deposit it, too! It helps that I work right near the bank so can pop in and make a quick deposit to get the leftover cash out of our wallets.

  • Ivy

    I have the exact same problem with Mint. On top of what you described, if you withdraw a larger sum and don’t spend it the same month you end up with a purchase attributed to the previous month once you finally classify where all the cash went. It’s a small thing but it bothers me, so I try to withdraw only as much as I think I’ll need for the next few days. But even though in 90% of the cases we only use cash for the babysitter and the farmers market plus some occasional dry cleaner and tipping, the “poof” problem is unquestionably there.

    My husband however (who has no part or particular interest in the spend tracking) has a problem if we don’t have any spare cash on hand for emergencies, and it annoys him if we are short and somebody has to run to the ATM. I admit to several occasions when his “secret” back-pocket 20 bucks have saved the day.

    • From a former babysitter – do they mind getting paid in checks? Honestly I would not have minded at all, and probably would have saved more of my babysitting earnings if I had been paid that way more of the time.

      We’re so near banks a lot of the time that stopping by an ATM is no biggie. But I could see it being an annoyance if it was far or out of the way.

  • Anne

    I’m with you guys- money is money, I don’t spend it differently with a CC, I just know where it goes with one! I understand some/most people outside the PF community may be more attached to greenbacks. It doesn’t make any sense to me, but neither does living paycheck to paycheck and boatloads of people do that.

    I think it also depends on the bill- my last year in college a classmate was working on a tight budget and always kept $20 in his billfold in case he forgot his lunch/stayed late and needed dinner/etc, but refused to keep smaller bills on him b/c he knew he’d spend them on snacks and whatnot he didn’t really need.

    Cash tends to disappear on me, but I do try to keep a little in my wallet for say, if I need to pitch in for a happy hour and have to leave earlier than everyone else. I try to forget it is in there otherwise so I don’t spend it.

    • I understand your college classmate’s actions. Before I started running with my phone on me, I kept a $20 folded up inside my ipod case on the off chance I ever got hurt and needed to cab it back home. It was definitely emergency money.

  • Where is the line for furs and jewelry? I can’t carry cash because it disappears. I know if there is $10 in my wallet I will find a (not very good) home for it within a few hours.
    AverageJoe recently posted..Active vs. Passive Investments — Which is Right For You?My Profile

  • Card, card, card…for everything.

    The cash back rewards really pile up by the end of the year and luckily we tend to be smart with it, instead of using it to buy something wasteful or unnecessary.
    No Waste recently posted..Waste Of The WeekMy Profile

  • Mama PoP

    Where is the choice for belt and suspenders? I always carry at least $100 in cash along with my favorite rewards card of the moment. I think I buy the same amount of stuff regardless, because I don’t think about how I am going to pay for something until I am ready to check out. The credit card rewards are very motivating and I think Papa PoP is more likely to use a credit card now because of them. I don’t think writing a check was in the survey, either. To my dismay, Papa PoP still carries his checkbook and even uses it sometimes.

  • I *love* Dan Ariely – if you get the chance, take his behavioral economics course on coursera – he’s much more interesting in person!

    I have a few bills in my wallet, but that’s “fun money” – it got accounted for when I pulled it out of the bank as “hers” – and then I don’t track it. I’m *much* better at tracking my spending via CC. And I get “cash” back from it too!
    Mom @ Three is Plenty recently posted..Fidelity changes their 529 plan expense ratiosMy Profile

    • I’ve heard his course is good, and am not surprised. I’ve loved every interview I’ve ever heard him do, and his books are all great. =)

      • I’ve met him, and corresponded with him via email about research. :) I don’t think he could pick me out of a crowd though.
        nicoleandmaggie recently posted..Book recommendations for new facultyMy Profile

        • Have you published anything with him?

          And with this question what I’m really asking is – if we co-authored a blogpost together would I then have an Ariely-number of 2?

          • Hahaha, no, but I think your Erdos number would be 10.

            I think your Ariely number would be 4, but I’m not 100% sure about that.
            nicoleandmaggie recently posted..Book recommendations for new facultyMy Profile

          • haha! My Erdos number is already in the single digits. I think it was 5 the last time I checked =) Though former colleagues should really work on publishing with more of the old greats in order to lower my number darnit!

          • Exciting! Then my Erdos number would be 6 if we coauthored.

            It’s kind of a fluke that I had one to begin with– one of my coauthor’s coauthors wrote something as an undergrad with an undergraduate professor who had an Erdos number.

            Do you also have a Bacon number? (As in, how many movie actors are you away from a movie with Kevin Bacon?) I haven’t been any movies, but my partner in crime must have a Bacon number since she was an extra in a huge blockbuster as a kid.
            nicoleandmaggie recently posted..Identity: Who are we, really, and do we care?My Profile

          • Bacon number… Hadn’t thought about it, but perhaps?

            Oh wait! Friends from musical theater in high school were extras in Groundhog Day, and Bill Murray has a bacon number of 1. So I think that gives me a 3? Sad that this is lower than my Erdos number.

            PS – google provides bacon number search functionality. Search for [actor] + bacon number. Ridiculous!

          • Though I guess this equates a movie with a film recording of our stage production of guys and dolls. Which may be a stretch. =)

  • As a former employee of a credit card company, the cash vs. plastic debate is one of my favorite discussions. I side with Ariely here, but of course there are going to be lots of people whose behaviors run contrary to the findings.

    The main problem is figuring out what you “would have” spent with another payment method. It’s very, very hard to get a baseline.

    The issue we have with cash is not the amount spent (I do think on average that plastic very subtly increases the total of your purchases, especially in the kinds of the things you will consider buying). But cash sucks when it comes to tracking. There is no immediate online activity showing where you spent the money, as there is with a credit or debit card. Only a paper receipt that is likely in the store’s trash can the minute you get it.
    Done by Forty recently posted..Should I Buy Investment Property Locally?My Profile

    • “The main problem is figuring out what you “would have” spent with another payment method. It’s very, very hard to get a baseline.”

      Totally agree with you. It could be that if we forced ourselves to go all cash we’d have an adjustment period and then be better off… but who knows? And how much money would we waste before we called the experiment off?

  • I prefer credit cards because I can track them more easily. When I have cash, I also tend to spend it more freely.
    Michelle recently posted..New Orleans Planning and $3,526 in Extra IncomeMy Profile

  • I do always carry some cash for things like laundry and a few other small purchases, but like you it tends to disappear without much knowledge of where it goes. Using plastic (either debit or cc) also helps me keep track of expenses for when I have to file my taxes and see what times I can deduct.
    Budget and the Beach recently posted..Oprah & the $40,000 HandbagMy Profile

  • Meg

    Most of the merchants in my neighborhood don’t take credit cards for purchases below $20, and most of our favorite restaurants are cash only. Since I’d be hard pressed to spend $20 on groceries in one go (everyone here shops daily), I burn through a lot of cash. It drives me bonkers. Our “food” budget category includes groceries and restaurants, and I just file all ATM withdrawals under there. But my husband I find it very hard to keep on top of that category.
    Meg recently posted..Monday Sundries: The Days Are Long, The Years Are ShortMy Profile

  • I rarely carry much cash. It’s easier to tell the daughter that I don’t have money for whatever she is asking for, although, she is starting to get the whole credit card thing and how they work. It does tend to disappear without a trace. At least with a card, I can go back and see what I spent money on.
    Kim@Eyesonthedollar recently posted..Do I Have What It Takes To Be a Big Time Credit Card Churner?My Profile

    • Does your daughter have a play credit card? A friend’s kids have this little play cash register and in addition to play cash, it came with play credit cards to pay for groceries!

  • Debbie M

    I think the answer is different for people who use only cash and pull out the amount they need for the week. They experience the disappearance of their cash as a disappearance of future spending power directly. People who use mostly credit cards can go over budget and just start getting used to paying interest on the credit card–or it only hurts them when the credit card is due instead of with every expenditure. People who use mostly credit cards probably also think of cash as easily replaceable because of ATMs, so they spend it at the same rate. I think people who use mostly checks and a check register probably also have that feeling of pain as they watch their balance shrink with every entry in that check register.

    As for me, I also think I’m an exception. At first I did find myself accidentally thinking that if I spend more I get more rewards (arg!), but I’ve bashed that notion out of my head. The only difference is that if it’s about time to fill my gas tank at the end of a quarter and I get extra rewards for gas during one of those quarters, I will try to time my gas tank refill appropriately.

    My memory for most purchases of any kind is short, so I record everything once I get home to make myself pay attention. And so I can easily look it up again later. On my financial spreadsheet, I check how I’m doing on grocery and “short-term fun” expenditures whenever I enter another expenditure–this helps me keep on budget (and properly feel the pain).

    As for you–yes, go with what works! But there may still be some way that monitoring your spending as you go can inspire you to spend less.

    • “[Cash users] experience the disappearance of their cash as a disappearance of future spending power directly… People who use mostly credit cards probably also think of cash as easily replaceable because of ATMs, so they spend it at the same rate. ”

      Debbie, this makes perfect sense, but I had never thought of it that way before!

  • I probably spend less than $50 in cash in an entire calendar year! It’s just so much easier and smarter on every level to use a credit card (assuming you pay it off in full every month of course…). Like you, I track every expense and it’s nearly impossible to accurately account for cash purchases.

    I love earning hotel and airline miles, as I’ve recently gotten into ‘travel hacking’ and have easily earned $10,000 of free travel just by opening and using new credit cards.
    Brad @ recently posted..The Impact of Prepaying your Mortgage Principal Each MonthMy Profile

  • You are definitely not alone! I only take out cash from the ATM for gas, and not much else. I know that gas costs me $35-40 to fill up, so I try to only take out that much. I am horrible with keeping track of what I spend it on. Whenever I see a withdrawal from the ATM I have to ask myself what it was for. My boyfriend is the same way – he uses his debit card for everything possible, even small purchases.
    E.M. recently posted..Spirit Airlines: First ImpressionMy Profile

    • cash for gas? Can I ask why? We get some of our highest cash back credit card rewards at gas stations and they have the added benefit of making me never have to leave my car’s side. =)

  • I avoid having cash in my wallet like the plague. Having cash on hand makes the vending machine too tempting and money slowly bleeds away. I don’t have that when my wallet contains nothing but plastic.
    Micro recently posted..Local entertainment nightMy Profile

  • I never used to carry cash, but then I moved to a city where you’d almost always have to valet when you go downtown. So now I try to carry $5 with me at all times – so it’s at least enough for valet.
    Well Heeled Blog recently posted..The I Love Cocktails BudgetMy Profile

  • I agree that having cash on my wallet sometimes can tempt me to spend away. It really is better if I only use my card and have all my transactions recorded.

  • I’m with you on preferring cc’s over cash – it helps track things a lot better into budget categories by looking at a statement. I do carry cash when I go out with friends, though (as well as have small bills), so once the check comes around I can just plop down my portion while everyone else figures their own stuff out. It’s easier in those circumstances, plus it helps me limit my options (especially when it comes to cocktails).
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  • Anne

    We use cash when we want to target a certain type of spending for our budget. For example, when we got serious about living on a budget, we identified our grocery category as low hanging fruit. We were spending (gulp…this will be embarrassing) almost $1200 every month for a family of 4. I picked a lower target and started to take that amount out in cash every month just for groceries. It really helped us concentrate on just that one category. Now we are back to using the credit card, but our bill is much lower every month.

    I couldn’t do this with every category in my budget (a la Gail Vaz Oxley), but it brings laser like focus to a specific budget area.

  • I thought this was an odd point when I read it in one of Ariely’s books. I don’t doubt that it’s true for a large portion of the population, but I agree with you, that it’s probably not true for me. I use cash when I want the spending to be anonymous to my budget and it just disappears during a night on the town.
    CashRebel recently posted..Infographics and IntrigueMy Profile

  • Haha I use cash all the time. I can definitely feel it leaving my fingers. I can’t remember every single thing I’ve used it on, but I know if my food envelope is empty, it means one of us has been enjoying some coffee and snacks too much haha.
    Cat Alford (@BudgetBlonde) recently posted..How To Travel In India: Tips From My HusbandMy Profile

    • Do you think that’ll change when you move back to the states? I was all cash all the time when I was living abroad b/c of exchange rates and fees, but switched back as soon as I came home.

  • Whether spending cash or using my debit card, I tend to have the “Wow, where did it all go?” factor. $5 here, $10 there adds up quicker than you think! I don’t track my spending money, it’s just mine to spend on whatever feels “right” that week (although it’s also my grocery/household money, so it’s definitely limited). Since I don’t track it, I try to keep it in cash. That way every time I reach into my wallet, there’s a visual clue about what’s left,and I can’t spend more than I have. But don’t bother asking me to list out where it went at the end of the week!
    Cindy @ GrowingHerWorth recently posted..Spending Choices: Feeding the DogMy Profile

  • It’s also worth noting that when I worked for a large retailer, they frequently pointed out the importance of pushing their credit cards, since research showed that customers that pay with credit/debit on average spend something ridiculous like 20% more per visit. And people tend to spend even more if they’re getting a discount. So yeah, the credit cards really pay for retailers, especially when you tack on the interest.
    Cindy @ GrowingHerWorth recently posted..Spending Choices: Feeding the DogMy Profile

  • It’s not so much that we don’t remember what we do with cash (we VERY rarely use it) but rather that when I have it I seem to think that it’s free money or something and I need to spend it! I want to GET RID of it! It doesn’t help that it’s kind of gross. If I’m at the farmer’s market, for instance, I will spend up to however much cash I have on hand, something I obviously would never do with a card.
    Emily @ evolvingPF recently posted..Would Someone Date You After Seeing Your Taxes?My Profile

  • We are the same. I hate cash for this reason and never use it! These six months of travel excepted… Not everywhere is as electronically friendly as NZ
    eemusings recently posted..Halfway there: Random travel snippets and thoughtsMy Profile

    • Travel is definitely one of our exceptions. We use cash to purposefully not track when we are on vacay, though that might have to change if we were doing extended travel the way you guys are.

  • Cash disappears too quickly from our hands. We don’t remember where it went, etc. We use cards for most of our purchases.
    SavvyFinancialLatina recently posted..House Shopping Is Disappointing- The Fruit Tree HouseMy Profile

  • Yup…i have similar experience with cash: it flows through my fingers like water. Because I save credit-card receipts to enter in QuickBooks, it at least FEELS like the card gives me a better paper trail, and that makes me imagine I’ve got a better grip on the budget.

    Could be smoke & mirrors, though…
    Funny about Money recently posted..Uh oh… Another Boondoggle about to Come Home to Roost?My Profile

  • I never remember where the cash went. We do reconcile spending on the joint account and there are so many “god only knows where that money went” lines it’s sad. I prefer credit cards to make one big payment a month but most places don’t accept them around here.
    Pauline @ Make Money Your Way recently posted..Make money with your gardenMy Profile

  • Oh I am totally struggling with the cash spending at the moment. I try to spend on my debit card as much as possible, but I always need for dance classes and salsa clubs, and then I end up spending the leftover in my wallet on who knows what… It drives me batty trying to tally it all up at the end of the week.
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  • I couldn’t agree with your more on this point. At the point of sale, I find paying with cash and paying with credit cards the same.

    However, if I buy something I don’t need, I see my credit card expense every time I log onto my account. I see it when I get my statement. I see it itemized when I do my budget.

    If I paid cash, that’s the last time I think about it. Its amazing how quickly cash vanishes.

    Therefore, I now try to limit the amount of cash I withdraw each time I go to the ATM and try to minimize the times that I do go there. recently posted..Personal Finance Podcasts – A review of business, finance & investing podcastsMy Profile