Good personal financial habits are just that: they are habits. They are practices that you master over time. They are methods you use to control your impulses, to become an informed and thoughtful consumer.

Making good buying decisions means consider every aspect to the transaction, including how you’re choosing to pay. According to some recent research done by Professors Rose and Chatterjee (pdf) at the University of South Carolina and the University of Kansas, your buying decisions are greatly impacted by the form of payment you use, whether that’s cash or a credit card.

The Cash-Cost Connection

Specifically, the researchers looked at a phenomenon known as the “pain of payment.” The pain of payment is the psychological impact that spending money – in whatever form – has on the consumer.

What they found is that cash leaves a much more vivid and intense memory when it comes to the pain of payment. Credit, on the other hand, creates a situation where payment is decoupled from consumption. Thus, using credit, consumers are less likely to feel the pain of payment.

Here are some specific results researchers had for those customers who were primed to use cash to make a purchase:

• When customers are primed to use cash, they focus more on cost aspects than on benefits.

• Cash customers were more likely to focus on all areas of cost including: purchase price, delivery time and delivery cost, warranty cost, installation cost, and more.

• Cash customers were less likely to recall benefit-related words after the transaction than they were to recall cost-related words.

• Cash customers experience the pain of payment in that, with each purchase, they watch the amount of cash they have lessen.

The Credit-Benefit Connection

On the other hand, customers who were paying with credit cards were more likely to spend larger amounts during their transactions. Here’s what researchers discovered about those customers:

• When customers are primed to use credit cards, they focus more on benefits than on costs.

• Credit customers made more recall errors in regard to cost, and fewer errors in regard to benefits.

• Certain things triggered credit card transactions, such as having a credit card symbol on the front door, a credit card sign at the cash register, or advertisements for credit cards.

• Credit card customers were more likely to choose indulgent products.

• Credit card customers were more likely to choose high-image products over low-cost products.

When going for price, use cash

The lesson here is fairly straightforward: if you want to save money on a purchase, make that purchase in cash. You’re going to be better able to focus on the costs involved in the purchase – all of the costs.

You’re also more likely to feel the pain of payment. That’s a good thing, if you’re trying to get the best price. You want that connection between your dwindling cash supply and the product or service that you wind up buying.

Using cash saves you money when you want to save money. If money isn’t a concern, or if you’re really focused on getting the best of a product, consider paying with a credit card.

David Rodwell is a seasoned writer in business and personal finance, taking a particular interest in payment processing. You can find more of his articles located at

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