Final answer:
When using cash, people tend to spend 12% to 18% less money compared to using other payment methods. This is known as the cash payment effect, which is due to the tangibility of cash and the psychological aversion to parting with it. However, the effect may vary among individuals.
Step-by-step explanation:
When using cash, people tend to spend 12% to 18% less money compared to using other payment methods. This phenomenon is known as the cash payment effect. The reason behind this is that cash is a tangible form of money, and when people physically see and handle the cash, they experience a psychological aversion to parting with it. This leads to reduced spending.
For example, if someone goes shopping with a credit card, they do not have the same feeling of loss as they would when spending cash. The transaction feels less real and immediate, which can lead to increased spending. On the other hand, when using cash, people are more aware of the actual amount of money they are spending and tend to be more cautious with their purchases.
It is important to note that the cash payment effect may not be true for everyone. Some individuals may have different spending habits regardless of the payment method used. Additionally, the effect depends on various factors such as individual financial goals, personal beliefs, and cultural differences.