A researcher at the University of Iowa has found size does matter when it comes to money. The study by the marketing professor who goes by the name D-Jay (his full name is Dhananjay Nayakankuppam), says people are more likely to spend small denominations of money, but will hold onto large bills. He says you probably noticed the phenomenon, that the minute you break a big bill, you seem to spend the money much faster. He says it looks like the one big bill has something called “processing fluency.”
He says processing fluency is the value people give to their money — and uses a 100-dollar bill as an example. D-Jay says we see the value of that bill as exactly 100-dollars. But ten ten-dollar bills can form more groups of money from ten to 100 dollars and he says we have a harder time seeing the money’s value and tend to “end up liking the money less.”
D-Jay says this could have some major implications for banks and businesses in setting up automatic teller machines. He says if the A-T-M dispenses ten ten-dollar bills, you’d be more likely to spend that money than if you received a 100-dollar bill. So he says if you have an A-T-M in a mall, it would be to your advantage to dispense smaller bills to get people to spend the money in the mall.
D-Jay isn’t sure if businesses have used this concept when setting up A-T-M’s. He says it’s probably pretty easy to set up a machine to dispense smaller bills instead of one large bill, but he hasn’t study whether that’s happening. D-Jay says the A-T-M’s are the primary source of cash for many Americans and there is potential there for banks to control spending.
Using his logic, it would seem the U.S. Treasury could control spending the economy by producing smaller bills instead of large ones. He says it had “some interesting policy implications,” but he says the treasury probably has other factors to balance in as they set policy. His study will be published in the March 2006 issue of the Journal of Consumer Research.