Cash or credit?

With the prevalent use of credit cards, online banking and debit transactions, cash may have appeared to be on its last legs, but new research suggests using currency may be the key to help people spend less and budget better.

The mere presence of a credit card logo made people willing to spend more, the study suggests.

Study participants viewed cash as producing the most "pain of paying," concluded the authors, Priya Raghubir at New York University and Joydeep Srivastava at the University of Maryland, whose "Monopoly Money" study was published last week.

In one case, 114 business undergraduates were asked to estimate how much they would be willing to pay for a restaurant meal with menus that sometimes included suggestive credit cards logos.

Participants were willing to pay 15 percent more, $12.70 for dinner with menus that included the logos versus $10.96 without, even though those surveyed were not asked how they would pay for the fictitious meal.

In another study, 28 participants were given a detailed shopping list of basic items to buy with either $50 in cash or gift card. Those who used the gift card were told any unspent amount would be given back in cash.

Those surveyed were willing to spend more with the gift card, even though it was equivalent to cash.

"The studies suggest that less transparent payment forms tend to be treated like play money and are hence more easily spent," the authors wrote. "Treating nonlegal tender as play money leads to overspending."

Kristen Van Rensselaer, finance professor at the University of North Alabama, said the study was interesting, but that it came with caveats. Because the study depended on undergraduate business students, Van Rensselaer said many may have not learned the ins and outs of credit cards at that age.

"You're dealing with people who don't have a lot of experience with money yet," she said. "Their credit card bill may be paid by their parents, just like Monopoly money as the title suggests."

The research fits under the umbrella of behavioral finance, a growing body of research that shows how humans don't make rational decisions, she said.

"Psychology really does play a big role in small financial decisions," Van Rensselaer said.

Whether cash will survive the era of digital numbers flying among mobile devices and computers is anyone's guess.

In 2007, 38 million currency notes with a face value of about $750 million were printed per day, according to the U.S. Bureau of Engraving and Printing.

"There is virtually zero chance that cash will be withdrawn from society within the next generation," wrote Mike Lee, CEO of the ATM Industry Association, in an editorial in ATMmarketplace, a trade journal.

In Lewes, a small town in southern England, cash is so respected that the town members launched their own currency last Tuesday to keep money in the community, according to a report on CNN. Fifty local merchants agreed to accept the currency that will supplement the British pound.

Trevor Stokes can be reached at 740-5728 or trevor.stokes@TimesDaily.com.