When it comes to managing your money, the received wisdom is that it is all too easy to overspend by making ‘contactless’ payments.
Simply tapping a card, the thinking goes, does not feel the same as handing over real money.
It has long been thought that if you want to keep a lid on your splurges, then you should stick to hard cash.
But a new study by Bank of England researchers suggests contactless may be best for budgeting after all. It is an idea many of us will find counter-intuitive.
The new theory is that people find it simpler to keep track of contactless spending because every purchase is recorded on their banking app.
Theory: A new study by Bank of England researchers suggests contactless may be best for budgeting after all
In fact, the economists found that many people now consider whatever they buy with cash to be ‘free’.
This is because of a belief that they spent the money when they took it out of the cash machine and not when they used it to buy an item.
This fallacy, the researchers say, is one example of ‘girl maths’. This is a tongue-in-cheek phenomenon on social media site TikTok where people – not just young women – come up with elaborate justifications for extravagant purchases.
Girl maths is widely mocked, but the report suggests that devotees might be on to something.
The opposite approach is old-school ‘cash-stuffing’ where people put actual banknotes into envelopes or jars and use them for specific purposes such as paying utility bills.
Four out of ten adults surveyed last year believed contactless payment was the best way to manage their money, compared with a quarter who favoured the use of cash.
The study was published on the Bank Underground blog, which is written by economists at the Old Lady, but is not an official publication.
It said apps that could analyse people’s money habits are a powerful budgeting tool.
The report stated: ‘After all, for some of us, nothing makes you realise you are overspending like learning that you rank among the top 5 per cent of your bank’s customers in terms of Pret spend.’
