Saturday, 12 January 2013

Not enough Dirty Money around?

In the current financial crisis being experienced in several countries, a key objective is to stimulate domestic demand. To get people spending.

In the US we have quantitative easing  and other countries have various minimum lending targets in recapitalised banks for mortgages and small business. The idea is that finance 'trickles down' to the consumer. Saving rates in many cases are too high and people are keeping their wallets closed. Economic growth is suffering.

Research published in the  Journal of Consumer Research by Professors Fabrizio Di Muro and Theodore Noseworthy may have put forward an idea that can help the situation .They found we spend old or filthy bank-notes more freely than freshly-minted ones with dirty and clean bank-notes resulting in feelings of disgust and pride in equal measure.

They said: "The physical appearance of money can alter spending behaviour. Consumers tend to infer that worn bills are used and contaminated, whereas crisp bills give them a sense of pride in owning bills that can be spent around others."

We don't like the idea of touching something loads of other people have already handled. Deep down, if we get a crumpled worn bank note, we want to get rid of it.

In a number of studies, people were given either crisp or worn notes and were asked to do a few shopping trips. They tended to spend more with worn notes than with crisp new notes. They were also more likely to break a worn larger note than pay the exact amount in crisp lower denominations. We hold onto the nice looking change.

If they wanted to impress someone, they spent the new crisp notes. This shows a more personal relationship with money than its economic value.

So if you want to get people spending on the proverbial high street, give them back their change in worn notes and put the crisp ones to one side. If your kids ask you for money this weekend to go to the cinema, give them nice new notes. It will go a little further and they'll like it more.

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