Heads-up Jim Flaherty — if you want to kick-start consumer spending, keep ratty, old bills in circulation.
University of Winnipeg business Prof. Fabrizio DiMuro has conducted extensive research into how people choose to spend crisp new bills and worn-out bills, and his conclusions are clear.
"What we noticed is if they had worn and old bills, they spend more," DiMuro said. "We’ve done it with both Canadian and American money and found no difference."
Faced with a choice, people want to get the old stuff out of their wallets as fast as they can, DiMuro said. On the other hand, they hold onto crisp new bills, unless they’re with other people and want to impress them by showing off their spiffy cash.
Fabrizio and his research partner, Prof. Theodore Noseworthy of the University of Guelph and University of Cincinnati, will publish their findings in the April 2013 edition of The Journal of Consumer research.
So how does anyone come up with such a research topic in the first place?
DiMuro was paying students for taking part in a previous unrelated study, giving them fresh $20 bills straight from the bank.
"People said they wouldn’t want to spend them — they’re so crisp and clean. That got the ball rolling," he said.
In this latest study, DiMuro and Noseworthy again handed out bills to students, giving them opportunities to spend under controlled conditions.
"They could keep it or spend it, or spend part of it," he said. And they were far more likely to spend the old stuff.
"Money changes hands a lot, especially small denomination bills," he said. "Money is subject to bias and inference, the same as other products."
The bias and inference seems to be: old and dirty, get out of my wallet, and get out now.
"There is some benefit to having older bills around in circulation," to boost consumer spending, DiMuro said.
People tend to hold onto new bills until they get a little worn just from being in a wallet, he said.
The exception being, if you’re out with other people, that’s when you reach for the new bills.
"We’ve found money is as much a vehicle for social utility as it is for economic utility," Di-Muro said. "We buy certain products to show off around other people."
Money is removed from circulation more often because it’s built up bacteria by moving hand to hand, rather than because of its age, he said.
"Money houses a lot of harmful bacteria. When your mother says, ‘Don’t put that money in your mouth, it’s dirty,’ she’s right, said DiMuro.
Canada’s new polymer bills will cut down both on bacteria and slow wear and tear, he said.
Ahh, that smooth polymer feeling
AT first glance, the new $20 bills being circulated this month seem like funny money.
The new bank notes are polymer, a chemical compound that looks and feels strikingly different from the paper $20 bills they will gradually replace.
The front of the new $20 bill features Queen Elizabeth II while the back features the Canadian National Vimy Memorial. This monument, located in Vimy, France, commemorates the 1917 victory at Vimy Ridge and honours Canadians who fought and died.
"The introduction of the $20 note is an important milestone for the new polymer series. Making up half of all banknotes in circulation, the $20 note is the most-used denomination," said Bank of Canada governor Mark Carney.
The remaining banknotes in the series — the $5 and $10 notes — will be issued by the end of 2013.
The $10 bill will feature The Canadian train and a portrait of John A. Macdonald.
The $5 bill will picture Canadarm2 and Dextre, robotics that were part of the international space program. The portrait will be of late prime minister Wilfrid Laurier. The $50 and $100 polymer bills have already been introduced.