Why you should use cash

Cash keeps you honest.
Honest with yourself; honest with your spouse; honest with the person or business whose money has been entrusted to you.

In Dan Ariely's Predictably Irrational, he relates several sets of experiments that he and his colleagues run to test people's honesty. Students answer some questions, add up their scores, and are rewarded a small amount for each correct answer. There is a control group; a group who can cheat to some degree; and a group who can cheat completely if they wanted to. Those who can cheat, do - but not by very much. Then the researchers add in other factors.

They begin with finding out whether an honour code helps reduce cheating - and it not only reduces it, it eliminates it altogether:

So we learned that people cheat when they have a chance to do so, but they don't cheat as much as they could. Moreover, once they begin thinking about honesty - whether by recalling the Ten Commandments or by signing a simple statement - they stop cheating completely. In other words, when we are removed from any benchmarks of ethical thought, we tend to stray into dishonesty. But if we are reminded of morality at the moment we are tempted, then we are much more likely to be honest.

Now comes the factor of cash versus objects. They repeat the same experiment, but this time, instead of rewarding correct answers with money, they reward participants with tokens, which they then exchange for money. In other words, the cash is at one remove.

The results are salutary: when given the chance to cheat and the reward is in tokens (not real money), the average rate of cheating doubled. Not only this, but a proportion of those in the token group cheated all the way or as much as was possible (claiming all correct answers).

This means that not only did the tokens "release" people from some of their moral constraints, but for quite a few of them, the extent of the release was so complete that they cheated as much as was possible.

Ariely discusses a number of possible uses for this research, along with the broad caution that our current trend towards a cashless society might hold some distinct disadvantages.
His finding also translate into our everyday relationship with money: it is easier to cheat ourselves when we deal in credit or bank-account-numbers, not cash. Before you convince yourself that you can spend your savings on that new TV, or that adding the extra magazine and chocolate won't add too much to the grocery bill, try paying for that desired object in cash (or even just picturing the cash). I guarantee you will see the purchase differently and, if you are saving for something else, it might just stop you cheating on your own goals.
I'm considering trying it out on my boys: keeping their pocket money in cash so they can see how much they've saved - or how much they plan to spend. Watch this space...