Many of you have probably heard about the studies on using cash vs. credit (or debit) as a way to help control spending. Using cash tends to produce the feeling of pain when handing it over to the cashier, where as plastic allows us to be detached from our purchase. We don’t see the money leave our wallet/purse and so the pain is delayed, maybe even gone all together. This may be true for people in average situations, but I argue that a better approach to this situation is to become conscious of your spending habits with credit/debit cards, and not lose out on the benefits that come along with using a card.
Individuals need to be aware of their spending regardless of whether they use cash vs. credit
Using Cash vs. credit shouldn’t be the only way for someone to realize their spending is real dollars leaving their personal economy. Instead of convincing everyone to pay in cash to avoid spending pitfalls, why not examine why people can’t control their spending on a debit/credit card. Check out “Why You Need to Start Tracking Your Spending” to explore the benefits of tracking your money using a budget. If you can track your cash flow accurately you will always have a clear picture of what your spending is doing to your bottom line.
There are benefits that come with using a card to purchase items that cash will never be able to give.
Rewards, cash back, travel points, security on purchases, fraud protection, the list goes on. I strongly believe that credit/debit cards should not be treated differently than cash. You, the consumer, have a finite amount of cash in your account; the plastic card in your hand is only a different means of spending that cash. It does not magically create more money for you to spend on items you can’t afford (technically it does but you will have to pay it back later!). A credit/debit card should only be a different medium for spending the money you already have.
One side affect of spending with cash is the wasted money that literally “falls through the cracks”
Ask yourself this question: The last time you paid for something in cash, and you received change under a dollar, say $0.70, what did you do with it? Did you thoughtlessly leave it as a tip, throw it in the cup holder, place it in your wallet/purse, or let it fall down somewhere on the floor of your car only to discover it 3 months later as your searching for your iPod cord that fell down from the dash. If you were to complete this transaction once a day for a year, you would end up with $255 in change.
This number, while not life altering, could be money spent elsewhere to improve your life. Keep in mind that in my example it was only one transaction a day. What if someone is doing multiple of these transactions a day with various amounts of change that they are throwing around? I am a penny pincher. I will admit it proudly. I keep a bag in my car where I place my change, and then when I am going to the bank to make a normal check or cash deposit, I will bring in my bag of change and put it back into my account.
It is much harder for someone to steal money from a card than from your wallet.
Using a credit card brings with it many fraud protection benefits. If your card is stolen and you notify your bank within the specified time frame your account will be protected from any unauthorized use while your money is kept safe. In contrast, if a $20 bill drops out of your pocket and onto the street, no bank is going to give that back to you. There is no mechanism for protection against stolen or misplaced cash. It is much harder to prove that you did not intend your cash to be used in a purchase then when you use a credit card to make purchases. Credit card transactions provide a level of safety and security in your purchases and put a barrier between your cash and fraudulent activities.
Using cash can mean having to pay cash for the cash you use.
For some consumers using cash means having to pay to get cash, such as from fees at the ATM, cashing a check without a bank account, or getting an advance on pay. These fees are also taking money away from individuals that could potentially be using plastic and not incurring the cost of cash. This is money that could be put towards retirement or quality of life enhancements.
The benefits of paying with cash vs. credit have been studied and articulated and you will likely find people who will urge you to spend with cash as opposed to using a debit/credit card to help save you money and control your spending. I take a different approach. I challenge you to become acutely aware of your spending habits first and take ownership and control of your finances. With the knowledge you will gain on your own behaviors using a debit/credit card will not represent a danger to your financial well being.
You can reap the rewards that come from using a safer way of purchasing things by using a credit/debit card that offers fraud protection and rewards programs. Not to mention, instead of using cash vs. credit, why note make sure your nickels and dimes stay in your bank account and not lodged between couch cushions.