Credit cards are more than just a convenient way to pay for things. They can also help keep track of what you’ve spent by providing an electronic trail of your money.  I like to do most of my spending electronically using internet banking, Bpay and credit cards so that I don’t have to keep notes or enter the transactions into my expense tracking system. I’m certainly not alone in this.

But there is a large body of research that would tell us that if you're trying to save money, leave your credit cards at home and stick to using cash.

Research reveals that we tend to spend:

  • MORE when we use credit cards than when we use cash

  • LESS when we look at our expenses in detail, rather than in summary

  • LESS when we only have large denomination notes

  • MORE when we use gift vouchers or other prepaid tools than cash

  • LESS, the longer the voucher sits in our wallets

It appears that this difference isn’t just accounted for by the liquidity effect (in other words, it's not just because you don't have to worry about money being in your wallet).

Behavioural economists and psychologists have identified two main reasons why this seems to be the case.

Paying with Cash Couples the Pain of Payment with the Purchase

Psychologists identified the concept of 'coupling' which describes the link between how we feel about consuming something and the experience of paying for it. When you pay with cash, you get the pleasure of what you are paying for, and at the same time experience the pain of paying for it. When you pay with a credit card or prepaid coupon, it separates the two experiences, so you miss out on the pain of parting with your hard earned cash.

An music download is a great example we all know. Clicking a button is a way more convenient option than counting out $2.60 in coins.

If you want to get enjoy your purchases even more, pay upfront. This separates the pain of paying for the experience from the joy of consuming it.

We Focus more on the Benefits than the Costs

When we separate the pain of paying from the pleasure of consuming, we tend to appreciate more the features or benefits of what we bought. This separation of the 'pain point' makes it much easier to succumb to the more expensive item (than if we used cash).

These psychological quirks make for a powerful argument as to why we should use cash over credit. Unfortunately in today's world, this is not always easy or practical.

How sensitive are you to the 'credit coupling' effect?

Try these exercises and find out!

  • The 30 day cash diet
    Try not using your credit card for a whole month for your day to day spending.  See what effect it has on your expenses for the month.

  • Try keeping a spending diary for a month  
    Every time you spend something (whether in cash or on credit) take a note of what you bought how much it cost and how you paid for it.  You should also note how you felt (where you happy, sad, bored or whatever) and who you were with.  At the end of the month, review your diary and see if any patterns emerge.

These can help you work out whether using credit cards to track your expenses is more expensive than it might seem.


Vince Scully


With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Vince founded the Calliva Group; a fund manager, product issuer, advisor and lender to Government and private clients. Vince is an advisor to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie bank’s infrastructure team.

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