Psychology of Plastic Effect

At some point in the midst of holiday shopping, most of us will dip into our wallets, take out a credit or debit card and make a purchase. Many times, we leave the mall or put down our tablets and phones having spent more money than we intended.
We’re moving into a world where we hold less cash and are increasingly comfortable using cards and electronic payment methods. Before diving into the possible effects this could have, I’d like to point to a famous quote by notorious gambler Julius Weintraub: “The guy who invented gambling was bright, but the guy who invented the chip was a genius.”

 

The psychology of symbolic money
When you go into a casino, you see people throwing chips around: $50 on red in roulette, raising $25 in poker, doubling down $100 in blackjack. Unfortunately, sometimes we can’t afford to lose the money we gamble away. The $100 lost on a double down in blackjack could have been several days of groceries for the family or overdue maintenance on the car. The $10,000 lost on a weekend binge could have been college tuition.
You may be able to relate to these examples personally or through family or friends. One aspect of the psychology of gambling is that people are parting with poker chips, rather than cash in their hand. The chip changes the form of your cash, not just physically but metaphorically, too. It can cause you to justify taking a risk. It can create an excuse so the $25 that was in your pocket is only a green chip on the blackjack table. The monetary value is the same, but your mind is more comfortable separating a poker chip from a bill in your pocket.

 

How it works with credit cards
The technological advances that have accelerated the use of credit and debit cards and other payment options can act in a similar way.
From 2006 to 2014, payment volume for Visa has increased from $2.13 billion to $4.76 billion. Other major credit card companies have shown similar increases. While this may or may not lead to carrying higher credit card balances, it most likely leads to less money in the bank account for the consumer.
In my opinion, we’re likely to spend more money with these cashless payment options. We pull out our cards or phones and make purchases without consciously contemplating the downstream impact as much as we would have if we’d paid in cash. We don’t physically hand the money over. Yes, we may hand a credit card over, but that’s the same motion whether we’re buying a pack of gum or a diamond ring. The rise of mobile payments creates even less friction for purchases, since buyers don’t have to sign anything.
Another consideration is the restriction that cash creates: If you don’t have enough cash to buy something, you can’t make the purchase.
For these reasons, people who use cards and mobile payments may be increasing their purchase frequency as well as the value of their purchases.