how the psychology of atm fees can save you money

cutexpensesHave you ever walked a mile just to avoid a foreign ATM fee?

It turns out that many of us do – and it’s perplexing the RBA.

Since the banks started displaying the $2 foreign ATM fee when you withdraw money, use of foreign ATMs has reduced markedly.

What has the RBA perplexed is that the fees haven’t actually increased – in fact, they haven’t changed at all.

We just know about them now. And that knowledge is affecting our behaviour.


If it’s not costing any more, why are we now choosing to avoid using foreign ATMs?

The RBA has come to two conclusions:

  1. That prompting at point-of-sale (‘would you like to continue with your transaction?’ aka ‘would you like fries with that?’) can influence a customer’s behaviour; and
  2. That people are now aware of the fees whereas previously they were not aware of them. Before foreign ATM fees would appear on bank statements long after a transaction has been completed; now the fees are displayed on the ATM screen prior to a transaction being completed.

Saving on bank fees is great (although there are probably better ways to stick it to the banks than walking 4 blocks in the rain to save $2), but the psychology behind the RBA report can be applied to other areas of spending (even if the maths can’t be).


the power of suggestion

The findings of the RBA show that prompting at point of sale can not only encourage us to buy more stuff, it can also encourage us to avoid spending. There are two things at work here: the prompt itself ‘do you really want to continue with the transaction and pay the $2?’, and what behavioural economists call the ‘pain of paying’.

So how do we use this information?

To avoid impulse buys, we need a way of prompting ourselves to question whether we really want to continue with a transaction or spend our money. A reminder that snaps us out of the excitement of the purchase.

Marketers know that we buy with our emotions and use reason to justify our purchases after the fact. We need a way of overriding that emotional response and use reason to evaluate purchases on the spot. It’s not easy. I consider myself a fairly savvy and frugal shopper and even I get carried away with the thrill of the purchase sometimes.

The good news is that we can use strong, positive emotions in our favour to counter the pull of the purchase.

Here’s how.

Maybe you’re saving for a holiday that you’re really looking forward to. Maybe you’re trying to get out of debt. Stick a picture on your credit card of something that represents your holiday or what freedom from debt means to you. This serves as an emotional prompt at point of sale that encourages you to question your purchase.

The ‘pain of paying’ refers to the emotional discomfort we feel when buying something. Some things induce more pain than others (like fees). We can increase the pain of parting with our hard earned money by paying with cash.

The tangibility of cash makes spending it more real whereas using eftpos, credit or increasingly PayPal doesn’t feel like spending at all. Paying with cash becomes another barrier to spending money impulsively or on things that don’t really matter.

The science says prompting at point of sale is effective for changing behaviour. Reverse the tactics and make them work in your favour.

complete information – making the invisible visible

Prior to the foreign fees being charged when you make a cash withdrawal, people didn’t actively try to avoid the fees because they weren’t aware of them when it mattered.

The same can be often said of our personal finances. Many of us don’t have complete information when it comes to spending.

Are you spending less than you earn? Can you afford to pay off your debts? How long will it take? How much interest is that purchase going to cost you? Can you spend and then still afford to pay the bills or put petrol in the car? How much are your little splurges adding up? Are the little expenses stopping you from affording the really important stuff?

How do you know?

The only way to know is to track your expenses and tally them up in a budget. By immersing yourself in your own finances, even for a little while, you get a picture of your spending habits that you won’t get otherwise.

By budgeting for expenses and creating a savings plan to buy with cash rather than credit, you know in advance whether you can afford to buy something. No nasty surprises when the bank statements arrive.

I’m a fan of using Excel to track my expenses but Smartphones are making this process all the more easier these days. MoneySmart (the Australian Government money website run by ASIC) recently sent me an email about their new app for iPhone (it’s free and no, I’m not affiliated with them) called Track My Spend. I haven’t tried it, but if you’re techy then an app will make tracking your expenses, especially cash purchases where there’s no receipt, easier.

And if you are an Excel fan, you can export your spending to Excel.


While it might seem like a dry subject, we can use the information gleaned from behavioural economics to save money on more than just ATM fees.

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  1. says

    I would go insane if I didn’t know how much I could spend in each area of the budget. How do people without a budget live with such uncertainty? How do they know they aren’t spending the electricity bill money? My budget certainly is the ‘point of sale’ red flag for me. Because I enter in the amounts I spend nearly every day, I know exactly how much I have to spend in any one category, and except for emergencies, when it’s gone, it’s gone…

  2. Cara says

    After reading your article I downloaded the app…I havn’t used it yet as I plan to start with it on Pay Day, but it looks like it will be great. I’m looking forward to it. Thanks for the tip.

  3. says

    Hey Melissa,

    Great article! Are you suggesting that the prompt when taking cash out of an ATM is actually the banks way of getting us to slow down on purchases or is it more of a deeper internal fight in our minds, where it gets us thinking “hmm, do I really want to pay $2 for that? Even the machine is second guessing me…”

    I recently tried to get on the budgeting bandwagon, even trying to use a cool budgeting app on the phone, but it can be so difficult after years of bad habits! :P