Why keeping a $100 bill in your wallet can curb spending


If you carry around a $50 or $100 bill, you might be saving money without even trying.

How so? We tend to think twice before breaking bigger bills because we see them as "special money," explains Dr. Mary Gresham, an Atlanta-based psychologist.

Here's why you might want to consider trading in those $10 and $20 bills for a crisp hundred.

Why we're reluctant to spend 'special money'

A concept called mental accounting has to do with how we make financial decisions based on our associations with money. Those associations aren't always rational, so the resulting decisions don't always pay off.

"We treat money differently depending on how we categorize it," says Gresham. "We associate a lot of small bills with miscellaneous, petty cash, while we associate large bills with special money."

Let's say you're given either one $100 bill or five $20 bills. Because we tend to associate smaller bills with miscellaneous purchases, it's more likely that you'll spend the money if you're carrying those five $20 bills than if you're carrying one $100 bill, according to a research paper published by The Journal of Consumer Research.

The same study showed that a test group of college students who had been given four quarters were more likely to buy candy — and bought more of it — than students given a single dollar bill.

The pros and cons of carrying more cash

When it comes to spending, most Americans prefer credit cards and other forms of payment over using cash. In a survey of more than 2,000 Americans, U.S. Bank found that 50% of respondents said they have cash with them less than half of the time. When they do carry cash, 76% said they keep less than $50 on hand, and nearly half have less than $20.

You can make a case for using cash or credit. But handling cash can heighten 'the pain of paying' and make you think twice about the transaction, compared to using a credit card or mobile payments on your phone to pay for your items, Jeff Kreisler, coauthor of "Dollars and Sense: How We Misthink Money and How to Spend Smarter," told Grow earlier this year. Modern technology "can be a real problem with spending; the more automatic things are, the more easy it is to spend," Kreisler says. "And that's not always good."

But while carrying large bills may help curb your spending, it's not a foolproof strategy. Businesses are often reluctant to accept $50 and $100 bills. And carrying a lot of cash increases your risk of loss in the event that your wallet stolen or misplaced.

We treat money differently depending on how we categorize it. We associate a lot of small bills with miscellaneous, petty cash, while we associate large bills with special money.
Dr. Mary Gresham

Ultimately, Gresham suggests, anything that makes you spend extra time deliberating a purchase is likely to help you make a more informed decision. And there's another creative use for that cash, she adds.

"Take a $50 or $100 bill and wrap it around your credit card," says Gresham. "That way, every time you consider making a purchase, you'll consider how that purchase translates into physical money."

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