As technology revolutionizes the way we deal with our finances and make payments, we run the risk of money feeling a lot less “real,” says Karen Brady, CFP®. Here’s how to stay grounded when it comes to spending.

Do you have any cash in your wallet?

Odds are, the answer is no. I’m guilty myself. I have a few dollar bills left over from the last time I went to the ATM…that was three weeks ago.

A survey from Bankrate confirms I’m not alone. They found two out of five people “carry less than $20 in cash on a daily basis.” I suspect this number would be even higher among Millennials, who may be more likely to Venmo 50 cents than dig in their pockets for some quarters (because they aren’t there).

With the dawn of virtual payment methods like Apple Pay, Google Wallet, and Paypal, coupled with the ease of credit card use, cash feels like the currency of the dinosaur age. In fact, in some countries, it’s pretty close to obsolete.

What Happens When Money Isn’t Real?

As technology revolutionizes the way we deal with our finances and make payments, we run the risk of money feeling a lot less “real.” After all, we rarely pull out a $20 bill, feel it in our hand, hand it over to a cashier, and leave the store with our wallet feeling a little lighter.

Adam Carroll, a personal finance expert, has dubbed this mindset financial abstraction, or “the notion that when money becomes more and more of an idea, less tangible, and therefore more abstract, it changes the way that we interact with it on a regular basis.”

In order to demonstrate his point, he conducted an experiment with $10,000 in cash, a game of Monopoly, and his own kids. Carroll wanted to know if seeing real cash on the board (and a cash prize of $20) would affect the way his kids played the game. His findings? When the money was real (and not board game play money), each player was much more strategic.

The pitfalls of financial abstraction go far beyond a game of Monopoly, especially for children. Money already feels abstract to kids, and the technology around us only furthers that notion. Remember, there’s a whole generation who won’t remember a time before you could pay for your lunch with your iPhone. To drive home the point that money decisions have real consequences, Carroll recommends giving children a set amount of cash and letting them make decisions on how to spend it.

Monopoly Money for Grownups

Swiping my credit card or Venmo-ing friends often feels like my own Grownup version of Monopoly money. Sure, I remember a time when my parents always had cash at the grocery store, but these modern conveniences are my default method of payment now—and they come with a few downsides.

The most obvious drawback is the tendency to overspend when you don’t actually have to part with any bills. Dun & Bradstreet confirmed this when their research found that people spend 12 to 18 percent more when using credit cards instead of cash. This may not seem too bad during your average run to Target, but it can certainly add up to thousands of dollars over the course of a year (or at least enough to make an extra student loan payment or two).

Furthermore, paying with credit or via your phone makes us a lot more susceptible to mental accounting. It’s easy to make a purchase and assume you’ll pay for it with your next paycheck or whenever the bill comes due. In a way, you’re borrowing from your future self. On the flip side, the amount of cash left in your wallet doesn’t lie. A dollar spent today is a dollar you don’t have for something else tomorrow.

The Upside of Virtual Payments

Despite those potential drawbacks, virtual payments do have many benefits—it’s partly why they’re so ubiquitous. The first, and most obvious, is convenience. It’s a lot easier to take out a piece of plastic or your phone (that was probably already in your hand anyway) rather than fumbling around with cash.

Virtual payments also tend to be much safer. They can help protect you from theft, fraud, and even yourself (if you have a tendency to lose your wallet).

A virtual paper trail also allows you to track every dollar you spend. Those who track their spending are more likely to stick to a budget, since they’ll be much more aware of where their money goes. We all know that keeping track of cash transactions requires a lot more effort, so it can help to stick with plastic.

Additionally, as long as you’re spending responsibly, you may even be able to earn some rewards and build up your credit history along the way.

A Balancing Act

So if virtual payments aren’t all bad or good, we need to strike a balance between convenience and making money (and its consequences) feel real. I’m not suggesting you lock your iPhone and credit cards in a drawer—that would be insane. But I do have ideas for anyone who feels like they may be treating their money like it isn’t real:

  • Check in with yourself. Before you make any purchase, whether it be in a physical store, online, or Venmo-ing some cash to a friend for takeout, ask yourself, “How much would I pay for this if it were cash?” Your answer may surprise you!
  • Try an all-cash diet. Challenge yourself to use cash only for one week, and write down each of your purchases as you make them. At the end of the week, compare your spending to the previous few weeks. Did you spend more or less? Were you more aware of how much and where you were spending your money?
  • Crunch the numbers. Use the Society of Grownups Debt Repayment Calculator to calculate the total cost of your credit card debt and how long it will take to pay it off. For example, a $500 balance on a credit card with an 18 percent interest rate will take nearly two years to pay off if you only pay the minimum of $25. It will cost you nearly $100 in interest charges as well. These are real dollars that could have been used to save for another goal!

Where Should Technology Go From Here?

As great technology evolves, it always comes with a few problems along the way. Instead of going back to the dinosaur age, we can start dreaming up what the next phase of financial technology will be. What’s next? Maybe a credit card that digitally shows your balance and the effect it will have on your credit score. Or a virtual financial advisor who gives you an allowance each week and manages the rest of your paycheck. Whatever it is, as long as we keep in mind the bigger picture—that our spending decisions have real dollars behind them—we’ll do just fine.

Karen Brady is the founder of Simplie, a financial planning company that offers virtual appointments with CERTIFIED FINANCIAL PLANNER™ professionals. Karen is a former member of the Society of Grownups planning team and is now based in New York City. When she’s not writing about personal finance or meeting with clients, you can find her roaming around NYC looking for the best place to eat.

Any third-party resources or websites referenced above are not under Society of Grownups control. Society of Grownups cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

Let's take action, Grownup.

Check out our online classes to start taking action on your goals any time.

Take a class

Let's stay in touch, Grownup.