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What is the Pain of Paying?

I have separation anxiety. Every single time money leaves my hand I feel like I need to sit down and re-think my life choices. I feel pain, a sense of loss and ultimately I grieve for my lost money.

Maybe I am a slightly dramatic person, maybe you feel the same way. Regardless of that, there is truth to the scenario I have described. Paying hurts. Instead of just accepting this as a fact and moving on with our lives, let’s explore the notion of the pain of paying.

In 1996, Zellermayer dubbed the negative feelings associated with spending money the “pain of paying.” He looked at the different implications the pain of paying could have. He mainly focussed on the effect of timing and payment method.

Timing With regards to the timing of the payment, Zellermayer expected to find a strong preference for paying before consumption rather than after consumption.

To test this, Zellermayer sold 120 adult museum visitors a state lottery ticket at $1, with a maximum prize value of $5,000. Half the subjects had to pay before scratching the lottery ticket, whilst the other half paid after scratching the ticket, whilst already knowing the ticket’s worth. Participants were given a form and asked to indicate whether they wanted to be reimbursed for the ticket and were asked to rate their pain of paying for buying the lottery ticket using a -5 (painful) to +5 (pleasurable) scale. Paying for an already consumed good was rated as slightly more painful than paying for a good that has yet to be consumed. Moreover, the participants in the “paying before” condition were significantly more likely to demand their money back.

These findings are in line with results found by Loewenstein and Prelec (1993). Participants were given a choice between pre-financing a vacation or start making payments after returning. 63% Of participants indicated a preference for prepayment. The same participants were then given a job description, and asked whether they preferred to be paid before or after doing the work. 66% of participants preferred to receive payment upon completing the work.

Loewenstein and Prelec (1993) argued that people have a strong preference for future benefits compared to future costs. Participants preferred a freely enjoy a paid-for vacation to facing a payment stream upon returning from this vacation. They similarly preferred to face a stream of payments for a completed work they had performed to owing someone the work for which no future payments would be received.

Payment Method Zellermayer proposed that the least painful method of payment would be the most preferred. His survey showed that showed that a clear majority of the participants preferred paying by credit card compared to cash. These preferences indicate that the credit card is less painful than cash. This makes sense as Zellermayer (1996) argued that an important factor of the pain of paying is the physical likeness to cash.

Raghubir and Srivastava (2008) used levels of payment coupling (concurrency) to determine the amount of pain caused by the different methods of payment. In the case of purchases paid by cash, there is a tight coupling of purchase and payment, as the purchase is immediately followed by the payment. This accentuates the pain of paying. With credit card purchases, although the payment also immediately follows after the purchase, the actual parting of the money occurs much later than the purchase, thereby decreasing the pain of paying as experienced at the point of purchase. The observed increase in spending when using credit card compared to cash, is then simply explained by different levels of pain. The more (immediate) pain experienced, the less is spent. This simple statement seems to be supported by many studies, as they have found that spending and also willingness to spend is higher using credit cards than cash.

Raghubir and Srivastava (2008) have proposed a second argument for the increased spending seen within credit card usage. They argue that this might also be a result of the underestimation of the future pain of paying. They argue that this underestimation is a result of the estimation of pain being mitigated by the immediate gratification of the purchase. This reasoning provides another argument for why credit cards are experienced as less painful, and seem to lead to higher expenses.

Individual differences Research by Knutson et al (2007) shows that the pain of paying even shows up in the brain. When experiencing excessive prices, the insula showed increased activation, prior to the purchase decision. The insula is associated with the experiencing of negative emotions and physical pain. The level of activity in the insula was found to be indicative of whether people made the purchase or not.

The pain of paying is not the same for each individual. You might know someone who debates each and every expense (tightwad), but also someone who spends as if there is no tomorrow (spendthrift). Different types of people experience different levels of pain of paying, which in turn can affect spending decisions. Tightwads experience more of this pain than spendthrifts and as a result spend less (Rick et al, 2008). The pain of paying is an impulse inhibitor. If this pain is reduced, impulses get freer reign, and in this specific scenario, spending increases. The pain of paying is thought to be reduced in credit card purchases, because plastic is less tangible than cash, the depletion of resources is less visible and payment is non-concurrent with the purchase.

In conclusion, the pain of paying, the negative feelings associated with losing money, is dependent on the concurrency of the payment with the purchase. As a result, the method of payment is able to influence the pain experienced. The amount of pain experienced bears a direct relation to the amount of money spend. The pain is worst when using cash, leading to the lowest expenditures. The pain is least when using credit cards, and as a result expenditures increase.

Whether you are a tightwad or a spendthrift, challenge yourself. If you actually want to save more money, switch back to cash. Leave the card at home, and see if you notice a change!

References Knutson, B., Rick, S., Wimmer, G. E., Prelec, D., & Loewenstein, G. (2007). Neural predictors of purchases. Neuron, 53(1), 147-156.

Loewenstein, G. F., & Prelec, D. (1993). Preferences for sequences of outcomes. Psychological review, 100(1), 91.

Raghubir, P., & Srivastava, J. (2008). Monopoly money: The effect of payment coupling and form on spending behavior. Journal of experimental psychology: Applied, 14(3), 213.

Rick, S. I., Cryder, C. E., & Loewenstein, G. (2007). Tightwads and spendthrifts. Journal of Consumer Research, 34(6), 767-782.

Zellermayer, O. (1996). The pain of paying. unpublished dissertation, Department of Social and Decision Sciences, Carnegie Mellon University, Pittsburgh, PA.


Behavioural Science

Personal Finance



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