Dutch consumers tend to use cash more often than debit cards when out shopping, a study has revealed. In 2012, in 60 per cent of purchases people paid in cash.

While the use of cash at point of sale is decreasing, it’s not happening as fast as people may think, according to De Nederlandse Bank (DNB). And there is a surprising reason why many people still stick to cash.

Rational human beings

Research into the actions of what is termed "rational human beings" shows that decisions are usually unconscious and unplanned, including those on-the-spot financial decisions. We just don’t really think about what we do.

Furthermore, we can’t really be successfully influenced. DNB conducted a virtual reality study into to what extent various manipulations affected using a particular payment method. Of these, increasing or decreasing the available budget or charging to use a debit card had the most effect, but even these were marginal.

Irrational feelings

There was even a neuro-scientific study carried out, using an MRI scanner to map a consumer’s brain as it was processing a payment decision.

This brain activity was subsequently translated into emotions and learned behaviour, demonstrating that paying with cash actually activates more positive emotions than paying by debit card.

Positive emotions such as desire, trust and value were compared to negative emotions such as fear, anger and loathing. The study showed that when paying with cash, the balance of emotions is more positive than for payments with the card.

It also showed that people who pay with cash mainly do so out of habit.

The research revealed that cash payments, perhaps because they are more strongly associated with positive emotions, form more of a habit than debit card payments, which seems likely given that the majority of people mostly pay in cash.

The age factor

A person’s age and their experience with debit cards also play a role.

Older people have a stronger preference for one particular payment method than younger people, while older users of both cash and debit cards demonstrate a stronger emotional preference and more habitual behaviour for their preferred method.

For younger people, the preference is less obvious, although cash payments are done more automatically than debit card payments. Both old and young seem to like having cash on them, even if they are not planning on spending it straight away.

Costly decision

Research also shows that our choice of payment method influences how much we are willing to pay for something. When we pay in cash, we are more conscious of the amount than when we pay with card.

The physical act of handing over notes, receiving your change and seeing what’s left in your wallet means we "feel" a cash payment more. This "pain of paying" supposedly leads to lower amounts being spent on purchases and to fewer impulse purchases.

What use is all this?

For DNB, the study will be useful in helping central banks determine whether to promote the use of cash or debit cards. At the moment, the basis for making these decisions is on reducing the cost to society, but further assessments could also take into account consumers’ motives and preferences, often unconscious, for one or the other.

Source: DNB