You head out to your local coffee shop to get your daily dose of caffeine. You place your order for a vanilla latte and the cashier says your total comes to $4.19. How do you choose to pay? Do you have a credit card with “tap” technology? Do you have a mobile payment app on your smartphone that is compatible with this coffee shop? Do you pull out a handful of coins to slowly count out the total?
What if we were to replace that vanilla latte with a new HDTV for the living room? Does that affect how you feel about your method of payment? Would you buy a new TV with cash? For me, it depends.
Why Carrying Cash Is a Good Idea
There are many advantages to paying in cash, both from a psychological and from a financial standpoint:
- Some businesses may be cash-only. And even among those that do take credit or debit cards, it’s possible that their machine or network is “down” for whatever reason and they can only accept cash at the moment. With very few exceptions, just about everyone will take cash. They may or may not accept Visa, Mastercard, American Express or whatever else.
- It hurts to pay in cash. Even though it shouldn’t make any difference, you really feel the sense of paying when you hand over cash, much more so than when you pay with plastic. Credit cards delay the pain and facilitate the habit of over-spending.
- You may be able to negotiate a better deal with cash. It’s completely up to the business, of course, but some salespeople are willing to budge more if you pay in cash, partly because of the transaction costs involved with accepting plastic. This can be great when shopping for bigger ticket items like furniture or electronics.
- Cash is oftentimes faster. This can be true with smaller transactions where you just want to get up and go, as well as at restaurants where you may not need to wait for any change if you’re topping up with a tip.
- There’s no such thing as a missed payment or interest charges (unless you take out a cash loan).
Why You Really Don’t Need Cash Anymore
Of course, just as there are reasons to pay for things in cash, there are many reasons why you may choose to use an alternative method of payment instead.
- Many credit cards offer “free” rewards. If you’re going to be spending the money anyhow, you may as well get the added benefit of earning miles, points, or dividends. For this reason, credit cards are not evil as long as you use them responsibly. The same can be said about mobile payment apps, like Starbucks, where you can earn rewards after spending a certain amount.
- Debit and credit cards lend themselves to better record keeping. When you look at your monthly statement, you can see exactly where you spent your money. With cash, the onus falls on you to keep better records manually. In effect, even though credit cards may lead you to spend more, they can also be used for better budgeting.
- You don’t have to fumble with change. I don’t mind carrying around a few bills, but having a pocket full of coins can be quite inconvenient. When you’re paying with a credit card or debit card, you are paying with “exact change” every time. This is especially handy if you are hopping around different countries with different currencies.
- Plastic is safer. If you carry around a large wad of cash and your wallet gets stolen, there’s not much you can do to recover that lost money. If your credit card gets stolen, you can immediately inform your financial institution to put a block on that card, preventing any further liability. Again, this is useful when traveling, because you don’t want to lose a month’s worth of cash in a foreign land.
Money Makes the World Go Round
For my part, I try to use my credit card more than cash, partly for the convenience and mostly for the “free” rewards. However, if the option is between debit or cash, I tend to prefer the latter. And most of my smaller transactions, like at fast food places, tend to be in cash. What about you?
On a related note, it is interesting how cash came to be in the first place, because it is effectively a form of credit. When you hold a $100 bill in your hand, you are effectively telling the world that you are owed that value in products or services. This is quite different from the direct one-to-one barter system of older societies. For more on cash, debt and money, have a look at this informative video from Crash Course. It’s hosted by John Green, the same guy behind all of those great Mental Floss “list” videos on YouTube.
It’s definitely true that some places will give discounts for paying cash. I think every Australian would know the jingle from The Good Guy’s advertising which goes “pay cash and we’ll slash the prices” (YouTube ebO-bLbiy0I), since they offer discounts for paying with cash rather than card.
Regarding the speed of payment, here in Australia most debit or credit cards come with Visa PayWave or Mastercard PayPass, which is a form of wireless payment where you just tap your card on the receiver. Most major businesses support it, and in those that do, it’s generally going to be faster than cash, unless the cost of the thing is such that an exact number of notes will suffice and no change is needed.
It makes things super convenient, although I wouldn’t be surprised to find that the psychological effect of it makes one even more likely to buy things than having to enter your PIN, which is in itself much more likely than cash (as you alluded to). That’s just speculation on my part, though.
A lot of places in Canada have PayWave and PayPass too. It’s really convenient, though the whole security part of it worries me, since there’s no need for a PIN, swipe, signature, etc.
At least in Australia, it’s limited to purchases under $100, and the user has zero liability, Visa or MasterCard will have to pay for any losses.