**This article was taken from The WIRED World in 2016 --_our fourth annual trends report, a standalone magazine in which our network of expert writers and influencers predicts what's coming next. Be the first to read WIRED's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online._
Digital wallets have long been considered to be an ideal of modern life. Apple Pay, Android Pay and the other, similar, platforms available in 2016 will mean that we will deal less with cash -- we will be freer, more flexible, spend less time on managing our money, and have a much clearer understanding on what we spend our money on. A sort of utopian era of technological bliss. The queue at Starbucks will be shorter. We won't have to wait to sign the credit-card receipt at the end of a nice dinner. We won't miss the Tube while trying to top up our Oyster cards.
And that is just the start. As these digital wallets, and others, develop further, much of the hassle involved with paying could be eliminated. A post-money economy would be upon us.
But, is this kind of future good news for us? Do we truly want to eliminate all the friction that comes with spending cash and swiping credit cards?
In 2011, a study published in the journal Obesity described an experiment in which some people got one 400g bag of crackers, while others got the same quantity of crackers, but in four separate, 100g bags. In which of the two cases did people eat fewer crackers? You guessed it: when the crackers were given in four bags. What made them stop sooner? When crackers were divided into multiple bags, people stopped at the end of a bag.
We call this the "decision point". When we get a large bag of crackers, we sit watching a movie and just eat without thinking much. But, when the bag is finished, we stop. And when we stop we think. And, as we think, we are more likely to ask ourselves if we really want to stop or continue. Sometimes we conclude that we should stop (and on quite a few we even do stop).
If we approached cracker consumption in the way we're currently thinking about digital wallets, we would be trying to build cracker dispensers that give people a continuous supply of crackers without thinking much and while minimising physical effort. But is this the world we want to create? When it comes to crackers, it seems clear that a world in which people eat crackers without thinking is not a good world for the individuals in question or for society (though it might be good in the short-term for the people producing crackers).
The importance of slowing down to think is important for cracker consumption, but it applies with even more force to money. Some friction, and the need to stop and think can, in fact, be good for us. Saving money is already very hard, as we compare something that we want right now -- and we can almost taste and feel it -- to something abstract that we might get in the future if we forgo the purchase and saved the money. Do we really need to make the process of spending any easier?
In the money domain, the feeling we get when we stop to think about spending is called "the pain of paying". This is a sort of agony that we feel when we part with our cash. It is the feeling that we have when we pay in notes and coins at the end of an expensive meal, compared with paying for the same meal with a gift certificate or a credit card. It is basically the unpleasantness that comes with thinking about the money that is leaving us -- and the more we think about it, the more pain of paying we get, and the less fun and exciting the purchasing becomes.
With this understanding of the pain of paying in mind, it is all too obvious why retailers and credit-card companies want digital wallets to eliminate the pain of paying. But, do we -- as the people using digital wallets to part with our money -- want the same process? Whereas the pain of paying can make us feel guilty after an expensive dinner, it can also prevent us (to some degree) from impulsive shopping. In a future with digital wallets the way that they are envisioned now, and with almost all frictions eliminated from the payment system, we are likely to fall for temptation at a much higher rate. It will be almost as if we got to spend the whole day sitting on a table full of fresh doughnuts, cheesecake and truffles, all within reach. The result? Not good for our long-term health or savings rates.
The idea that electronic wallets should get us to think about money does not end with thinking about spending. What about savings? Could we add things to electronic wallets that would change the way in which we think about savings, and by doing so make us save more? Saving is an area of life that doesn't cross our minds often, and even when it does, it rarely produces increased results. To test the extent to which the design of digital wallets could influence savings behaviour, Duke University conducted an experiment with more than 2,000 customers of a mobile money savings plan in Kenya. We randomly assigned participants to receive one of many different services from the savings plan. Some participants received two text messages every week: one at the start of the week to remind them to save and another one at the end of the week to report a summary of savings.
In addition to these text messages, other participants also received a gold-coloured coin with 24 engraved numbers (the numbers one to 24), to indicate the 24 weeks that the plan lasted. At the end of the week, if these participants had saved money, they were asked to take a sharp knife and scratch the number for that week in a way that indicated what they had saved during that week. Other participants got a different type of reminder message: a text that was framed as if it came from the participant's child, asking them to save for "our future". Yet another group of participants got a match for their savings. They received a bonus of ten per cent of their weekly savings, deposited in their account at the end of each week. There was also a group of participants who received a 20 per cent match. (We had some other conditions as well, but they did not end up being that interesting.)
At the end of six months, the service that performed spectacularly better than every other service was... the coin. Every other service, that is the text message from kids, the extra deposits and our other approaches, increased savings only slightly. Those who received the coin saved, on average, about twice as much as those who only received the simple messaging service.
How did a simple coin make such a difference in behaviour?
We believe that it made the act of saving salient by changing what people were thinking about as they were going about their day. From time to time they saw the coin in their hut; from time to time they touched it, talked about it. By being physically present, the coin brought the thought about saving, and with it the act of saving, into participants' daily life.
How will our relationship with money evolve? With digital wallets, we are exploring a completely new medium -- and this is a good point to ask how the future might be shaped. The answer is that it will depend on design. If the people putting these products into the market focus on minimising friction and thought, then more money will be spent with less thought and attention. But, if we understand the places where we fail when it comes to thinking about money and try to use technology to augment our memory and attention in order to help us think better, the future might be much better.
Dan Ariely's latest book, Behavioural Economics Saved My Dog*, is out now (Oneworld)*
This article was originally published by WIRED UK
