Pa­per cur­rency vs. plas­tic: Times when money isn’t real


Money is money, whether it’s cash in our hands, plas­tic cards at check­out coun­ters or en­crypted bits of data cours­ing be­tween com­put­ers on the in­ter­net.

But our brains don’t view all money as equal, thanks to what be­hav­ioral economists call “cog­ni­tive bi­ases”:

• We spend cash more care­fully than plas­tic.

• We re­gard tax re­funds as a wind­fall rather than a re­turn of what we earned.

• We’d rather have money now than more money later.

Some­times our il­lu­sions about money can be har­nessed for good. The “Save More To­mor­row” pro­gram, cre­ated by economists Richard H. Thaler and Shlomo Be­nartzi, has peo­ple com­mit to in­creas­ing their re­tire­ment con­tri­bu­tions start­ing one year in the fu­ture. In the economists’ ini­tial study, work­ers who agreed to save fu­ture dol­lars nearly quadru­pled their sav­ings rate in four years.

When we treat some forms of money as less real than oth­ers, it can re­ally cost us. For ex­am­ple:

Time-shares and recre­ational ve­hi­cles of­ten are pitched as a way to save on fu­ture va­ca­tions. Any­one who has owned ei­ther knows that’s not nec­es­sar­ily true. First-time RV buy­ers, for ex­am­ple, of­ten un­der­es­ti­mate the costs of main­tain­ing, re­pair­ing and fu­el­ing their rigs. Time-share newbies can be gob­s­macked by ris­ing an­nual fees, the has­sles of trad­ing their units and the dif­fi­culty of shed­ding un­wanted time­shares.

If you’re de­ter­mined to buy, pay cash for se­cond­hand ver­sions.

A brand-new 2017 Fleet­wood Storm RV costs six fig­ures; we picked up a 1998 model with less than 7,500 miles on it a few years ago for $15,000.

We loosen the purse strings on va­ca­tion be­cause we want to re­lax and not stress over every pur­chase. As a re­sult, six out of 10 peo­ple over­spend their sum­mer va­ca­tion bud­gets, ac­cord­ing to a sur­vey last year for Citi ThankYou Premier Card. Add in con­fu­sion about ex­change rates, and it can feel like the for­eign cur­rency in your hand is just play money.

Check ex­change rates be­fore you leave, then use a cal­cu­la­tor or a cur­rency ex­change app to check prices on the fly.

High-de­ductible in­sur­ance plans are sup­posed to make us more care­ful about our health care spend­ing, be­cause we have to shell out more of our own money be­fore in­sur­ance takes over.

What high-de­ductible plans can do is cause peo­ple to put off see­ing the doc­tor, which ul­ti­mately can re­sult in much big­ger bills for treat­ment.

The so­lu­tion is to use men­tal ac­count­ing, another think­ing flaw, to your ad­van­tage.

If you opt for a high-de­ductible plan, make sure that you keep enough cash ear­marked in sav­ings to cover that de­ductible and that you use it to stay cur­rent on your health care.

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