Trying to save money? Ask for crisp new bills at the bank

Consumers will spend more to get rid of worn bills because they evoke feelings of disgust but are more likely to hold on to crisp new currency, according to a new study in the Journal of Consumer Research.

"The physical appearance of money can alter spending behavior. 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," write authors Fabrizio Di Muro (University of Winnipeg) and Theodore J. Noseworthy (University of Guelph).

Does the physical appearance of money matter more than we think? Money is said to be interchangeable. If we lend someone a $20 bill, it shouldn't matter if they pay us back with the same $20 bill or a different one. This is why diamonds, real estate, and art are not suitable as currency. But money may not be as interchangeable as consumers think.

In several studies, consumers were given either crisp or worn bills, and asked to complete a series of tasks related to shopping. Consumers tended to spend more with worn bills than with crisp bills. They were also more likely to break a worn larger bill than pay the exact amount in crisp lower denominations.

However, when consumers thought they were being socially monitored, they tended to spend crisp bills more than worn bills. When testing the well-known finding that people spend more when given the equivalent amount in lower denominations (four $5 bills) than when holding a large single denomination (a $20 bill), the authors found that the physical appearance of money can enhance, attenuate, or even reverse this effect.

"Money may be as much a vehicle for social utility as it is for economic utility. We tend to regard currency as a means to consumption and not as a product itself, but money is actually subject to the same inferences and biases as the products it can buy," the authors conclude.