Big Bills and Spending

Here’s a novel approach if you’re trying to keep a lid on your spending.

Carry around $100 bills.

According to a study for the Journal of Consumer Research, shoppers are less likely to spend their dough if they are carrying cash in large denominations. Through a series of experiments, the study shows that if people have an equivalent amount of money, say $100, the folks with the big bill in their pockets might not part with it, while those carrying tens and twenties more easily give up the cash.

In one experiment, the researchers gave American business-school students a dollar. They told the students they could keep the money or use it to buy candy. About half the students were given a dollar bill, while the others were given four quarters. Two-thirds of the students given quarters bought some candy, but only a quarter of those who got the bill spent the money. However, once those students with the paper cash decided to spend, they spent more.

This so-called denomination effect can be a powerful predictor of consumer spending habits What’s driving it? Researchers say we tend to isolate the cash in our minds. Each $20 is a separate, less valuable entity than that single $100 bill. So it’s easier to part with five of those twenties than with a single precious hundred in our pockets.

And consumers fear that once they break that large bill, they won’t be able to stop spending the rest.

There’s another people hang onto to hundred dollar bills and it has nothing to do with psychology. A lot of retailers simply won’t accept them.

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