Dirty Money and Spending Behavior

by Michael on Apr 1, 2013 · 1 comment

Photo of Wrinkled Dollar Bill

Looking for new ways to save money? Perhaps you should consider asking for new bills the next time you withdraw money at the bank.

While it’s well-accepted that currency denomination influences spending, there’s now evidence that the appearance of your money may be even more important.

Interestingly, the social context of the spending also has a major impact, to the point that it can actually reverse this behavior.

In general, people are less likely to spend larger bills as compared to an equivalent amount of money in smaller bills. But what about wear and tear? Well…

According to a recent study in the Journal of Consumer Research, consumers tend to spend more with worn bills as compared to crisp, new bills. And they’re also more likely to break a worn, larger bill as opposed to spending crisp, smaller bills.

The authors delved into why this is true and found evidence for a “push-and-pull emotional mechanism” wherein people are disgusted by worn bills (which are perceived to be filthy) while taking pride in crisp currency.

This can be summed up as follows:

“People want to rid themselves of worn currency because they are disgusted by the contamination from others… [but they] put a premium on crisp currency because they take pride in owning bills that can be spent around others.”

As an aside, did you know that the Fed considers “soil content” when deciding whether or not to remove bills from circulation? While damage is one reason that bills are taken out of circulation, filth is apparently an important consideration.

As for the social context… The above behaviors change dramatically when people think they’re being watched. In fact, consumers are somewhat more likely to spend their crisp bills when they think that their fellow shoppers are watching.

All in all, it looks like we tend to treat money itself similar to the consumables that we buy with it. Interesting stuff.

Source: Journal of Consumer Research


{ 1 comment… read it below or add one }

1 Alaskan150 April 1, 2013 at 9:21 pm

So if we switched to plastic bills that are better at repelling dirt our money would look cleaner and people would be more reluctant to spend it – except when other people were watching?

What would the net effect on the size of the multiplier be?

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