Paying with Venmo? You may be missing out on the hidden psychological benefits of cash

Never in history has grocery shopping been easier for people prone to forgetting their wallets at home. Whenever you approach the cashier and realize this common mistake, third-party apps like Google Pay and Apple Pay are there to save the day.

A recent study, however, suggests the frictionless ease of paying with apps makes it harder to understand just how much disposable income you actually have—and to put the amount of it you’re spending in proper perspective. Shopping may have been more challenging back in the days when cash was king, but perhaps there’s such a thing as having it be too easy.

According to a paper published in Qualitative Market Research, paying for goods or services with cold hard cash has a psychological effect missing from card and app-based transactions. The act of parting with physical money apparently grounds the moment in concrete terms, making the monetary absence more palpable. After money you’ve held in your hands slips through your fingers, the cost registers beyond an abstraction. It’s impossible to both have our cash and spend it too, so the transaction registers more as a loss—and a stinging one at that.

Jashim Khan, associate professor of marketing and director of international business management at the University of Surrey, led the researchers who reached this conclusion. The team conducted its study in two parts, carried out on different continents a decade apart. The first part took place in New Zealand in 2013, and the second was centered in China in 2023. Both involved a combination of focus groups and open-ended questionnaires, during which the subjects described how they pay for various items and how they tend to feel afterward. Emotional responses cited after cash transactions include “sadness” and “guilt,” which are more likely to be missing from the autopilot-mode of using a digital wallet.

In recent years, more businesses have opted to go cashless due to pandemic-era fears of contagions, while others have done so to discourage robberies. U.S. consumers, for their part, now use digital wallets for 42% of physical transactions, a percentage that is expected to creep up significantly over the next few years. Meanwhile, retailers have removed payment obstacles online, too: Sites like Amazon and Shopify make it possible to shop on multiple sites without even having to grab your credit card number.

Well before digital wallets became a common form of payment, it was clear consumers tend to spend more when they’re not paying with cash. But the last 25 years have seen the rise of many sleek new ways to spend money without using cash, including apps like Google Pay, Apple Pay, and Venmo. Gen Z, who came of age as these forms of payment were catching on, has adopted them to the point where reportedly 85% of Gen Z used their phone for a payment in 2023.

“One striking observation from our research is that Generation Z tends to form a psychological ownership with the apps where they store their money,” Khan tells Fast Company. “In contrast, millennials feel a deeper emotional connection to cash. For them, parting with cash feels akin to parting with a part of themselves.”

As digital wallets become more common and cashless businesses rise alongside them, consumers may feel less sadness and guilt after their purchases, according to the study’s findings. While experiencing fewer negative emotions may read on paper like a desirable outcome, it could lead to an epidemic of mindless spending and economic precarity. It is possible to institute some guardrails on personal finances, though, despite our digital wallets.

According to Khan, one way to maintain the enjoyment of our purchases while also spending sustainably is to monitor checking and savings accounts every week, or even every day. Regularly reviewing these accounts helps us stay mentally tethered to the amount we have and how much we spend. Another effective strategy he recommends is keeping a spending diary.

Whatever one does, though, it’s important to keep in mind that spending money probably should indeed feel like a loss, especially when it’s money one can’t afford to part with. Sometimes, feeling bad is part of a greater good—staying out of debt.