Sunday, July 14, 2013

July 14 (1969) US Discontinues High Denomination Bills: Bad News for Savers?


On this Bastille Day in 1969, the Federal Reserve Bank officially discontinued large denomination bills, namely the $500, $1,000, $5,000, and $10,000.

Today, as in 1969, greenbacks are issued in seven denominations of $1, $2, $5, $10, $20, $50, and $100.

This may not be good news for savers. A 2009 study by Priya Raghubir and Joydeep Srivastava found large denominations of money led to lower spending, as breaking a bill accentuates the "pain of paying."

Correspondingly, people spend even more when cash isn't part of the transaction, i.e. when payments are made with credit cards, gift cards, even debit cards. The more "transparent" the payment outflow, the greater the aversion to spending, and cash is the most transparent form of payment.

So, if you're looking to save more and spend less, a good place to start may be cutting up your credit card(s), and exchanging your Washingtons for Benjamins.

Further Reading
NPR Interview: Why We Spend More Using Credit Cards vs. Cash
American Psychological Association: How Spending Affects How Much You Spend
Allyou.com: Spend Cash and Save

History of Large Denomination Bills
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Flannery O'Connor

You shall know the truth and the truth shall make you odd.