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Cash isn’t going away, but it will become digital

Startups and banks are racing to remove cash from our lives, with apps that help us pay quicker and watches that access money straight from our wrists. But is the end result quick, thoughtless spending?

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For more than 3,000 years, cash has played a critical role in the way our society functions — due as much to its fiscal value as its emotional and cultural connotations. It offers near-universality along with the heavily discounted value of anonymity. Conducting business with discretion is key, as nearly all of us opt to keep some transactions private. Cash protects our fiscal sovereignty, embodies a cultural dimension as it’s designed with extreme care, and above all else, it’s a tangible, one might say visceral, connection to our economic means: Our money.

For all its worth, money, unlike cash, is nothing but an intangible idea, its value expressed by anything we choose — from cowry shells to bear skins to metal coins. Today, we embrace money’s intangibility as pixels on a screen. We accept digital money in nearly all fiscal functions — from purchasing bonds and stocks, to managing checking and savings accounts, to simply splitting a dinner bill — removing the need for physical money.

Given all that, one would think that cash, the last anchor of tangible money, would fade away as quickly as you can download an app ... and yet it doesn’t.

Cash is not going away. Nearly 30 percent of transactions are conducted with cash, despite the financial industry’s 30-year effort to eliminate it from society. The physical manifestation of money remains critical to a transaction that has value, worth and awareness. There is a certain level of thoughtful human behavior exhibited with cash transactions that isn’t present within digital transactions, and that’s a massive problem.

When cash is invisible

As money becomes completely digital, we misconstrue its worth, lose financial context and ultimately make poor spending decisions. Kids who grew up meticulously counting their $5 weekly allowance mature to only lose track of their expenses as digital financial tools are introduced. The receiving of the first debit card leads to many “Dad, my card has been declined and I have no idea why ...” calls. Once financially savvy cash-carrying kids are turning into less-savvy digital spenders.

Studies have proven that we don't feel a strong sense of loss when we make purchases with digital money. Instead, we spend 12 percent to 18 percent more with credit cards without fully considering our purchases or their costs. For instance, kids who buy lunch with debit cards buy more dessert than fruit, while kids who pay with cash buy more fruit than dessert. Even adults using apps like Venmo focus more on the payment description than the cost itself — arguably spending more with less thought. Humans are visceral beings, and without a tangible value for money, we lose our financial senses.

Spending tangible cash triggers a psychological sense of loss, resulting in more thoughtful fiscal behavior. In one study, when people were given free cash and asked to spend it, they did so more conservatively than when asked to spend credit. "Payment modes differ in the transparency ... with which individuals can feel the outflow of money," one team of psychologists explains, "with cash being the most transparent payment mode." Essentially, non-cash payments can have a Monopoly-like feeling, where value is either reduced or completely negated.

Feeling our spending

Current digital, fiscal innovations have been designed solely for efficiency and security. Banks in particular are motivated to alleviate the burdens of cash, including the costs of security to guard it, armored trucks to move it, and banks to hold and exchange it. As startups and banks alike race to remove cash from our lives, we are left with apps that help us pay quicker and watches that help us access money straight from our wrists. But if the end result is quick, thoughtless spending, then who benefits in the end?

Handling money triggers psychological reactions, both beneficial and consequential, that alter how we spend. We get a boost of oxytocin when gifting or receiving cash, feel pain when spending a lot and have a sense of control when holding money. These emotions ultimately trigger more thought in how we use our money. We need to take advantage of the benefits of digital currency (efficiency, security, cost) without forgoing the benefits of cash (social, psychological, behavioral).

Cash might change form, as it historically has in the past. But something absolutely needs to exist between digital money and hard cash to merge the systemic issues that arise in a cash-free society. Regardless of the shape a solution takes, the best way to bridge the gap between the new and old worlds of spending is by borrowing the characteristics of something familiar like cash, yet with selected digital properties: Semi-connected, discrete, tangible and physical.

It’s not building something physical to have something physical, but to restore the dissolving awareness we have around how, when and on what we are spending our money. The fiscal loss is too great if we eliminate physicality in all the ways we spend, which is why a digital cash experience is the future.

Gadi Amit is the president and principal designer of San Francisco-based NewDealDesign. Working with Silicon Valley’s top technology companies, he has created some iconic products, including Fitbit and the Lytro Camera. He is currently working with the best and the brightest tech firms to create new technologies that will come to light in the next 12 to 18 months. Reach him @NewDealDesign.

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