By Tina Zawila
I came across the term “Financial Abstraction” recently which refers to the theory that our relationship with money changes depending on whether we are dealing with cash (notes and coins) or digital currency – credit cards, debit cards, pay pal, or any other electronic payment method.
Did you know that according to a recent study by Dunn and Bradstreet people spend 12-18% more when using credit cards?
Think about the last time you carried cash in your wallet, did you pay more attention to how you spent that cash compared to when you tap and go with your debit or credit card? I know that I am more conscious of where and how I hand over cash to pay for even small purchases, compared to when I am using my card.
When we pay for something electronically, we do not have the physical transaction and loss of something tangible from our possession, therefore, our mind is tricked into thinking it was harmless, even though we are still spending our cash even if we can’t see it. The pain of spending is minimised when we transact digitally.
Research indicates that our financial habits are changing as we move towards virtual transactions where money is more of an idea and less of a physical reality. An interesting statistic is that it is estimated that there are trillions of dollars in the global economy every day, yet only 4% of money is in coins and currency, the rest is all digital.
Electronic payments are referred to as “frictionless” – making it easy for you to (mindlessly) spend the money you can’t see.
Now I’m not saying we all need to cut up our cards, close our pay pal accounts, or cancel Apple Pay, but I am saying that maybe we need to pay a bit more attention to those impulse, non-essential purchases to avoid the traps of personal debt.
Maybe you could experiment and withdraw your “play” money in cash at the start of the week and limit your spending to the cash in your wallet? I wonder if you would spend less than the week before when you were tapping your card? Could you save an extra 12-18% on those discretionary expenses and re-direct these savings to something you really want?
If you need advice with managing your money or personal budgeting, call the professional team at UHY Haines Norton on 4972 1300, we have tips and tools to help you achieve your financial goals.