How far does a Tk1,000 note go?

Illustration: TBS

Tasin works at a corporate firm in Bangla Motor. One morning, he stops at an ATM at the metro station and takes out a few crisp Tk500 notes.

For a moment, he feels rich.

Then the rickshaw puller asks for Tk40. Tasin holds out the Tk500. "Bhangti nai, mama," the man says. So Tasin buys a tea, a few cigarettes and a banana he does not want. Now he has change.

The spending continues. Lunch at the office canteen. Tea from the *tong* downstairs. A round of singara for his colleagues. Water, chips, the metro home, a rickshaw and a bag of guavas outside his building.

That night, he opens his wallet. Only a Tk100 note stares at him.

He can account for the metro and lunch, roughly Tk320. But the rest? He remembers breaking the Tk500. He cannot remember where it vanished.

Mithila, a student at Dhaka University, has a similar day.

She leaves home with a Tk500 note. Breakfast comes first with paratha, egg and tea from a roadside stall. At TSC, she treats her friends to tea. Then biscuits. Lunch is khichuri at the Charukala. Photocopies at Nilkhet. Phuchka in the afternoon. One last cup of tea, for the road. A rickshaw home.

By evening, Tk90 is left. She remembers lunch and the rickshaws. Everything else is a blur of tens and twenties. The big expenses stick. The small ones vanish. 

Economists have a name for this. They call it the "denomination effect." It is a cognitive bias where people are less likely to spend money when it is held in large notes compared to an equivalent value in smaller notes.

According to the Bangladesh Bureau of Statistics' Household Income and Expenditure Survey 2022, an urban household spends roughly Tk430 a day on exactly these small cash purchases: fares, bazaar shopping, tea and snacks. Spread across the average 1.37 earners in an urban home, that is over Tk300 a day per breadwinner. Almost none of it comes in Tk1,000 portions.

On paper, it should not exist. One Tk1,000 note and ten Tk100 notes buy exactly the same rice. But psychologically, we do not treat them the same.

"When we have a big note, we think spending it means spending Tk1,000," said psychiatrist Prof Dr Helal Uddin Ahmed. "But once it is broken, we say, 'If I buy something for Tk200, how much am I really spending?' And by spending Tk200 here and Tk200 there, we end up spending the whole Tk1,000."

Is it the physical size of the note? No, he said. "We simply perceive that 1,000 means big."

"When we have a big note, we think spending it means spending Tk1,000. But once it is broken, we say, 'If I buy something for Tk200, how much am I really spending?' And by spending Tk200 here and Tk200 there, we end up spending the whole Tk1,000." Dr Helal Uddin Ahmed, Psychiatrist

It happens everywhere, even to children.

In 2009, marketing professors Priya Raghubir and Joydeep Srivastava put this to the test in the US. They gave 89 university students either a $1 bill or four quarters, plus the chance to buy sweets. About 63% of those with coins spent them. Only 26% of those with the note did.

Then they tried it on children at Halloween. Every child given quarters swapped them for candy. Fewer than half of those given a dollar bill did.

At a petrol station in Omaha, drivers given five $1 bills were more likely to buy snacks than those handed a single $5 bill. In Xiangtan, China, 150 homemakers were given RMB100, a substantial sum for them. Those handed a single note were twice as likely to spend nothing at all.

"People tend to overvalue bigger bills," Srivastava told TIME magazine at the time. "There's a psychological cost associated with spending a $100 bill that's not there with spending smaller bills."

Here is the twist. Among those who did spend, the big-note holders spent more. The American students who broke their dollar spent $1.17 on average, against $0.82 for the coin holders. The Chinese women who broke their RMB100 note spent about RMB68, against RMB57. And they felt less satisfied afterwards.

"Once that barrier is passed, it's like a dam gets broken," Srivastava said in that interview.

Psychologists call it the "what-the-hell effect". You promise yourself no sweets. You eat one biscuit. The promise is broken anyway, so you finish the packet.

Another US study, by Arul Mishra, Himanshu Mishra and Dhananjay Nayakankuppam, found that a single note simply feels more valuable. One $100 bill is one clean number. A $50, two $20s and two $5s can be combined into 16 different sums. The messier the money looked, the more willing people were to spend it.

"This phenomenon exists all over the world," said Dr Helal. "It is part of consumer psychology, and advertisements are designed around it."

Which brings us to the people who understand this best: those trying to sell you things.

Take the price tag. "When an item is priced at Tk99, you feel encouraged to buy it. At Tk100, you think, 'That's Tk100,'" said Dr Helal. "The difference is just one taka, yet it changes your mental world."

Discounts work the same way. A "10% off" sign feels generous, he said, even when the original price was higher to begin with.

Then there is the quiet art of matching. A 2021 study by Yi Li and Mario Pandelaere found that people like to pay with a note that "fits" the price. Students holding a single 200-shilling Kenyan note were more likely to pick a 198-shilling snack than those holding four 50-shilling notes. The researchers suggest shops can use this, pricing meal sets and gift cards to match the notes customers usually carry.

Dr Atanu Rabbani, research director at the Bangladesh Institute of Development Studies (BIDS), argued that the effect may be smaller than it sounds.

His first worry is the experiments themselves. "They are done in highly controlled environments, and in most cases with a small amount of money," he said. "How much will you really care?"

Participants also know they are being studied. "The money is like a gift to them," he said. Spending a gift is not the same as deciding what to do with your salary at the end of the month.

His second point is about real life. "If your actual need for the month is Tk800, my guess is you will spend around Tk800, whether you are given ten Tk100 notes or a single Tk1,000 note," he said. "That is real-life decision-making, in terms of consumption and survival, or just living your life."

Take cigarettes. On a given day, a big note might make a smoker say, "Fine, I'll have one later." But over three days, or a month? "If you smoke ten a day, it might be two more or two fewer," said Dr Rabbani. "But I don't think it would change your regular average consumption."

So the line he draws is not between the short term and the long term. "I would call it meaningful versus non-meaningful," he said.

Then there is the hassle of breaking a note. That, he argued, is not psychology at all. "If I write you a cheque, you can't use it straight away. You have to take it to the bank, get cash, then go to the shop. It's a transaction cost." The rickshaw puller's "bhangti nai" may be the same: friction, not feeling.

His verdict: "This psychological effect is probably very salient in controlled experiments. But for our regular daily decisions, I don't expect it to make much difference."

In fairness, not every study used pocket change. In Xiangtan, RMB100 was real money for women earning RMB301 to RMB600 a month. But some of the paper's experiments were hypothetical, and none tracked spending beyond a single decision.

By Dr Rabbani's logic, Tasin's Tk900 day may simply be Tasin's usual Tk900 day. The big note did not make him spend. It just made him notice.

Perhaps the truth sits somewhere between the laboratory and the tea stall. Over a month, the effect may be small. On a single Tuesday, it is real enough to cost you a bun you did not want.

So better we heed an old Mexican folk saying, which Raghubir and Srivastava placed at the top of their paper: "You should take care of small, loose bills as large bills take care of themselves."

Shadique Mahbub Islam is a journalist.