Two researchers in the US may have answers to the questions that millions of Indian credit card users ask themselves almost every day — why do they accumulate debts when they use plastic money? One’s irresistible urge to swipe the credit card, despite its leading to mounting debts, is partly due to the way the brain perceives these non-cash transactions.

Priya Raghubir of New York University and Joydeep Srivastava of the University of Maryland have found that people tend to spend less when paying in cash than when using credit cards or through any other financial mode. Cash discourages spending, while credit cards or gift coupons encourage it, they said in a paper that appeared last week in the Journal of Experimental Psychology: Applied.

“The intention to purchase and willingness to pay is much higher with credit cards,” Srivastava, who is currently at the Indian School of Business in Hyderabad as a visiting faculty member, told KnowHow.

“Over the past decade Joydeep and I have been examining subjectivity in the value of money,” said Raghubir. Their basic premise was that money in another shape, form or name is not treated the same.

In the present work, the scientists explored two factors involved in purchasing behaviour: consumers’ willingness to part with money and the mode of payment. The more transparent the payment outflow, the greater the aversion to spending or the higher the ‘pain of paying,’ they say. Cash is seen as the most transparent form of payment.

A few studies in the past have shown that consumers tend to spend more when payment is made through a credit card than by cash or cheque. An interesting study by Brian Knutson, a neuroscientist at Stanford University, and others in January last year showed that there is a “hedonic competition” between brain cells associated with the ‘pleasure of acquisition’ and the ‘pain of paying’ when a shopper is about to make a purchase.

“Our idea is to explore the possibility of closing the gap between purchase decisions made while using cash and non-cash instruments,” said Srivastava, who did his undergraduate studies in Presidency College in Calcutta in the late eighties.

The scientists used data available from various studies they had conducted in the past.

In the first study, 114 volunteers were made to pay for an elaborate restaurant meal. The researchers found that people were willing to pay more when using a credit card than when doling out cash. They attributed the difference in spending behaviour to the way cash can reinforce the pain of paying.

As part of the second study, 57 participants paying for an imaginary thanksgiving dinner were allowed to tabulate the price, item by item, on the dinner menu, rather than just pay a lump sum. When they did this, the cash-credit spending gap closed substantially. When faced with the detailed reality of expenses, the researchers argued, people become more realistic, no matter which mode of payment they use.

The last study was more illuminating, with the psychologists realising that the time gap between the receipt of money and spending it also influenced spending behaviour. In this experiment about 130 participants were given $1 in cash or as a gift coupon to buy candy. Initially, those who received the coupon were more willing to spend. However, when they were made to keep them in their wallets for an hour, there was a significant change in their attitude. Then they behaved more like those who had received cash, leading the scientists to infer that the behavioural change was due to their ability to assimilate the value.

According to Srivastava, it is quite like a person who wins a jackpot. If he or she receives the money and spends it immediately, the person spends it on luxury items, irrespective of whether the purchased items make a meaningful change in their life or not. But when the winner has to hold on to the prize money for a while, the spending becomes more rational. “This is because the winner has mentally assimilated the prize money into his wealth,” said Srivastava.

The studies, the researchers stressed, suggest that people have a tendency to treat less transparent payment forms like play money and hence spend more easily.

The study has shown that simple manipulations, such as warnings about the deceptive ease of non-cash payments, can alter the spending behaviour of people.