Tag Archive : Money Saving

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Want to save? Keep bigger notes in the wallet

If you want to save the money in your pocket, load your wallet with bigger money notes rather than smaller ones. What are the bigger money notes? The bigger notes mean money notes with a more higher value. For instance, in the US, people consider 100$ a bigger banknote. This value of the currency notes may change according to your country.

Denomination Effect

According to a new study published in the Journal of Consumer Research, shoppers are less likely to spend their money if they carry cash in large denominations. The researchers call this “denomination effect”. Researchers have identified through a series of experiments, that people carrying some amount in large banknotes hesitate to spend them, while people carrying the same amount in small banknotes comparatively less hesitate on spending.

What causes this denomination effect? Most consumers see large bills as more important than a bunch of small bills, even though the amount may be the same total value. According to Marketing professor Joydeep Srivastava, at the University of Maryland’s Robert H. Smith School of Business and a co-author of the study, people tend to overvalue bigger bills. People tend to isolate cash amounts in mind. So a 100$ amount is more important, than 5 bills of $20. People psychologically think that 100$ is a big effect than spending the five 20$ bills. Although there are 5, it’s in small amounts of 20$ each.

This may be similar to eating a huge cake piece by piece. You may hesitate to eat when the cake is there as a whole. It’s adorable and beautiful but once cut into pieces (you may even hesitate to cut it into pieces), no problem eating piece by piece.

What the hell effect

In addition, consumers fear that once they break the large bill (having change), they won’t be able to stop spending the rest. “It’s like a dam gets broken once the barrier is passed,” says Srivastava. Researchers labelled this effect as “What the hell” effect. People think that If they break a hundred, they lose it from the wallet. The rest is small so they fear that they may lose them very soon. However, when people with bigger bills decide to spend, they spend bigger amounts on bigger things (maybe more important things) rather than small bills.
To support the theories the researchers conducted a series of experiments.

Experiments

Undergraduate Students

In one experiment, researchers gave 89 undergraduates of the University of California, Berkeley, and the University of Maryland a dollar. They told the students that they can buy candy from that money or keep it. Researchers gave half of the students this amount in a 1$ bill, while they gave this amount to the other half as 4 quarters. Out of the group who got the dollar bill, only 26% spent it. But 63% of the students who got the value as 4 quarters spent it to buy candy. However, the students with bigger bills spent on larger purchases when they decided to spend the money later.

Chinese housewives

Crossing the Pacific, researchers did a similar test in China. They gave 150 housewives 100 yuan each. This amount, they could either buy soap, shampoo, bedding, pots and pan or save. Similar to the previous experiment, half the group got the amount in a single 100 yuan bill. The other half got it in 2 numbers of 50 yuan bills. More than 90% who received small bills spent the money while only 80% who got the larger bill spent the money. But what you should note is that the small bill half spent an average of 56.76 yuan while the large-bill half spent an average of 67.67 yuan.

Credit Cards

If you are using the credit cards or other means of electronic payment, this psychology pattern is disrupted. That’s why you don’t hesitate to spend money through credit cards unlike using cash. It does not immediately come to your mind that credit card transactions or other electronic payments later convert to cash that affects your budget. To overcome this, experts advise wrapping your credit card in a real 100$ bill ( or other suitable according to your currency). So every time you take the card out, there’s a reminder that your transaction is going to convert into cash (same as the wrapper) finally. This will make you think twice.

Downside

Well, as everything this also has a downside. There are risks of keeping bigger banknotes in your wallet. It’s simple as this, “You lose your pocket, you lose the whole amount”.