Big Cash Denominations=Less Spending?

A new study in the Journal of Consumer Research suggests that people who carry around cash in relatively large denominations like $20 tend to spend less than those who use smaller bills. According to the abstract for the study:

Labeled the “denomination effect,” study 1 shows in three field studies that the likelihood of spending is lower when an equivalent sum of money is represented by a single large denomination (e.g., one $20 bill) relative to many smaller denominations (e.g., 20 $1 bills). In two of the three field studies, individuals spent more once the decision to spend had been made. Study 2 then shows that consumers deliberately choose to receive money in a large denomination relative to small denominations when there is a need to exert self‐control in spending. Study 3 further shows that the denomination effect is contingent on individual differences in people’s desire to reduce the pain of paying associated with spending. The results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones, allowing them to be used as a strategic device to control and regulate spending.

It’s an interesting supposition, but I am not sure I buy it. I rarely use cash, preferring to track my spending with my credit card and avoid the effort of going to the ATM. When I do use cash, I am no more reticent to use a $20 than I am to spend a $1 or a $5 bill.  This may be partly because I use cash so rarely that I never know what denominations I have until I open my wallet.

On the very rare occasion that I have a $50 or $100, however, I do sometimes think twice about spending it if I am paying for something that costs significantly less. I can trace that to the embarrassment of looking like a moneybags and to a desire to save the cashier the hassle of having to give me a lot of big bills back.

Readers’ comments about this study over at Get Rich Slowly suggest I’m not the only one. What about the readers here?