The Cashless Effect: How eliminating the “pain of payment” can improve your experience

Disney, Amazon, and Panera Bread have seen huge returns after applying this psychological principle

Photo by Sharon McCutcheon on Unsplash

Note: This article is adapted from my book “Choice Hacking: How to use psychology and behavioral science to create an experience that sings”. Click here to download the first chapter free.

“People spend money where and when they feel good.”

— Walt Disney

Have you ever heard of the Envelope Budgeting Method? It’s a simple system that relies on people putting cash into separate envelopes for different parts of their budget (groceries, rent, etc.). It can be useful for those who feel their money seems to “slip away” during the month on small purchases.

But there’s also a psychological reason why using cash makes it easier to stick to a budget. It’s down to a principle called the Cashless Effect.

What is the Cashless Effect?

The Cashless Effect states that the more tangible payments are, the more psychologically painful it is for customers to spend. The Cashless Effect is related to a concept called “pain of payment.”