The “denomination effect” … it’s about spending, not religion.

Punch line: If you want to control your spending, leave your credit cards at home and only carry around big bills …

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Excerpted from NYT: A Reluctance to Break the Large Bills, March 29, 2009

A paper  published in The Journal of Consumer Research investigates the so-called denomination effect — the additional tight-fistedness people exhibit when their money is tied up in a few large-denomination bills, as opposed to many small ones.

  • In one study, 63 % of college students who had been given four quarters splurged on candy; 74% of students given a single dollar bill, pocketed it.
  • In another study, 20 percent of Chinese women given a single 100-yuan note ($14.66) chose not to spend the money on an array of shampoo, bedding and other household goods — but the rate of abstention was only 9.3 percent among women given the same amount of money in smaller notes.

“People overvalue these large bills … It’s partly a self-control mechanism — I want to hold onto it, because if I do break that big denomination, I lose track of my spending.”

The findings are especially relevant to “places like China or India that are predominantly a cash-based economy.”

Full article:
http://www.nytimes.com/2009/03/30/business/30drill.html

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Ken’s Note: Never thought of a “single dollar bill” as a particularly big denomination …

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