Author Topic: End of Cash = ?  (Read 6455 times)

Ottawa

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End of Cash = ?
« on: October 07, 2013, 07:45:44 AM »
This is a fascinating article.  I don't even know what part of it to start talking about it! 
http://business.financialpost.com/2013/10/05/the-end-of-cash-will-it-make-spending-zombies-of-us-all/

I use cash for less than .05% of transactions.  I find the use of cash, while nostalgic, inconvenient.  I also find that cash doesn't reward me to use it.  Unlike my credit cards.  I now use 2 credit cards in a clinical manner to optimize cash back.  I estimate we get back 2% of all credit card transactions. 

Clearly the dissociation (between purchasing and the pain of actually paying) is anesthetised by (non-cash) payment for a majority of people.

One might argue that the decline in daily cash transactions has fuelled consumerism.  What do you folks think is a potential way to bring back that nexus between purchase and pain?

stevesteve

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Re: End of Cash = ?
« Reply #1 on: October 07, 2013, 08:23:27 AM »
Credit takes away that nexus and so does making transactions without seeing depletion.   I think for debit cards seeing an updated account balance on receipts would be pretty helpful.  I don't know if I like the implications of that data being available to a store or clerk but I think it would be useful.  Something similar might be able to apply to credit utilization.  If there was a good way to deal with the privacy implications so that only the account holder could see this information it'd be great.

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We overlook the fact that retailers pay transaction fees, which result in higher prices

This, I think, is the bigger problem and there's really no incentive out there to change it.  Transaction fees on debit cards of 0.8 to 1.6% and a multi-cent fixed fee is very high for the service.  And the only way to recoup any of that price increase is to get cash back from cards that perpetuate the increased costs.  I'd love to have decreased transaction fees and have more costs put on those who borrow.  I doubt that will happen.

directionseeker

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Re: End of Cash = ?
« Reply #2 on: October 07, 2013, 10:03:17 AM »
I still prefer cash when I am paying for my stuff. I think it done a good job on reminding me whether this spending is really essential to me. I have read articles like the one in the link and although I do carry some credit cards but I never use them except one. I just sign up for the rest for the cash credit the banks were giving out and I just keep them deep in my drawer after that.


daverobev

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Re: End of Cash = ?
« Reply #3 on: October 07, 2013, 10:22:18 AM »
Credit takes away that nexus and so does making transactions without seeing depletion.   I think for debit cards seeing an updated account balance on receipts would be pretty helpful.  I don't know if I like the implications of that data being available to a store or clerk but I think it would be useful.  Something similar might be able to apply to credit utilization.  If there was a good way to deal with the privacy implications so that only the account holder could see this information it'd be great.

Quote
We overlook the fact that retailers pay transaction fees, which result in higher prices

This, I think, is the bigger problem and there's really no incentive out there to change it.  Transaction fees on debit cards of 0.8 to 1.6% and a multi-cent fixed fee is very high for the service.  And the only way to recoup any of that price increase is to get cash back from cards that perpetuate the increased costs.  I'd love to have decreased transaction fees and have more costs put on those who borrow.  I doubt that will happen.

Don't forget that there is a cost to handling cash too, though. I have read various reports of how much it costs - but at the end of the day, it costs the shop and the bank.

Especially here in Canada, the use of your bank card can cost you money - basic banking packages have limits on the number of free transactions (though there are at least a couple of free alternatives).

Jamesqf

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Re: End of Cash = ?
« Reply #4 on: October 07, 2013, 11:23:25 AM »
I use cash for less than .05% of transactions.  I find the use of cash, while nostalgic, inconvenient.  I also find that cash doesn't reward me to use it.  Unlike my credit cards.  I now use 2 credit cards in a clinical manner to optimize cash back.  I estimate we get back 2% of all credit card transactions.

While I use cash-back (and 0% interest) cards for most purchases (and have been doing so for a decade or more), I haven't noticed that it changes my spending much at all.  About the only difference is that I may make the occasional large purchase (say new tires) today, rather than waiting a few days until I have money in the checking account.  Of course other people may react differently...

WRT transaction fees, I pay for a lot of my grocery shopping and gas in cash, because the prices are lower than with credit, even taking the cash-back into account.

Ottawa

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Re: End of Cash = ?
« Reply #5 on: October 07, 2013, 11:34:22 AM »
A bit more rambling...quote from the linked article:

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“Not only are we not using cash very often but we’re all broke from all of these simple ways to spend money,” says James Roberts, a marketing professor at Baylor University in Texas. Mr. Roberts authored Shiny Objects: Why we spend money we don’t have in search of happiness we can’t buy.

I haven't read this book and this quote may be out of context.  Notwithstanding, I'm not sure if I can agree with the second part of this quote.  While it is demonstrable and true that (at least) North America is using cash less (in favour of electronic means) I don't know about the support for a causation between this and 'everyone' being broke because it is easier to spend. 

Is this a case of correlation vs causation confusion?  After all, Mr Roberts has a strong marketing background...hardly scientific. 

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Seeing a price tag stimulates part of the brain known as the insula, which is associated with pain. But using credit cards anesthetizes this pain. We all fall along this continuum: from tightwad to spendthrift. But with credit, even the miserly become big spenders. This is why mode of payment is key.

I find it painful to spend money paying...
1) full price for anything
2) for items that aren't essential
...no matter what mode of payment I use.

You just have to retrain yourself to feel the pain with a different trigger (i.e. equate the CASH with ALL PAYMENT VEHICLES)

I like MMM's description from here:http://www.mrmoneymustache.com/2011/05/27/exposed-the-mmm-familys-actual-spending/

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Mr. Money Mustache is a bit of a Natural Frugalist. For me, buying anything beyond groceries  is like giving birth, where there is great thought, planning, and nine months of physical stretching and pain involved before the actual wallet emerges slowly from the pocket.

Hmmm:
Quote
“Unless something is done by intervention, we might end up in a situation where these payment [methods] further feed into impulsive behaviours. We can build in safeguards in the system. In my research, one of the things I find is that people forget how much they spend; but if you give them feedback by simply reminding them, people correct their behaviour.”

I don't disagree...but, unfortunately, who gains by putting safeguards in the system?  Would a credit company fund this research and incorporate it?  Hell no!
Until then...this feedback will have to come in the form of a Mustachian style PUNCH IN THE FACE! 

I think humans will always be impulsive...by making available a diversity of spending modes...it will simply magnify the opportunity to elicit these impulsive behaviours...

StarswirlTheMustached

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Re: End of Cash = ?
« Reply #6 on: October 07, 2013, 01:38:21 PM »
I use cash myself, more often than not. I suppose I got in the habit of cash from shopping mostly at Farmer's Markets during the summer months. Then it just makes sense to take my grocery budget out in cash, since some large percentage of it would be spent in cash. The habit sticks. If I'm at a local business I like, like our used bookstore, for example, I'll make sure to use cash so my entire purchase price goes to the retailer. (Debit and credit fees are quite high, here; whenever I've asked, small vendors usually prefer cash.) For that reason, I'd hate to see us stuck with only electronic transactions. It seems like (if you pardon the pun) the ultimate cash grab on the part of the money-transfer industry.

I do find it easier to keep track of my spending when there's a shrinking wad of bills right in front of me. Yes, looking at the big number on the checkout that tells me what I spent should be equivalent, but... somehow, it's not as visceral. I don't think my spending habits change greatly, since either way, I only spend money when I feel I have no choice-- but if I'm charging everything to the credit card, I can be surprised by the size of the balance at the end of the month.


Albert

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Re: End of Cash = ?
« Reply #7 on: October 07, 2013, 02:41:24 PM »
I still pay cash for all my groceries and occasional visits to restaurants. Debit card is used for most other purchases done in person (clothes mostly) and credit card mostly for online purchases and travel expenses (hotels and car rental). Makes sense to me as my cards aren't earning anything for me anyway...

Jamesqf

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Re: End of Cash = ?
« Reply #8 on: October 07, 2013, 02:50:37 PM »
A bit more rambling...quote from the linked article:

Quote
“Not only are we not using cash very often but we’re all broke from all of these simple ways to spend money,” says James Roberts, a marketing professor at Baylor University in Texas. Mr. Roberts authored Shiny Objects: Why we spend money we don’t have in search of happiness we can’t buy.

I think that's the key right there.  Most people may (or may not - I don't know) be using plastic to spend money they don't have.  I use it to spend money I do have, sitting in my mutual fund accounts.  And if I use the zero-interest ('til the end of 2014. currently) card, that money is going to stay in the accounts.  As MMM might say, my little green employees are going to keep on working for me for a while longer :-)

Random

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Re: End of Cash = ?
« Reply #9 on: October 07, 2013, 05:57:35 PM »
I just sold my trusty old pickup for $3,000.  Of course, asked for cash or cashiers check.  I got cash.  what a pain in the butt.  Now I have to go to the bank.

MrsPete

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Re: End of Cash = ?
« Reply #10 on: October 08, 2013, 10:27:34 AM »
I've read in numerous places that people who use a credit card tend to buy more than people who are paying in cash.  It does stand to reason:  If you're spending cash, you have to spend less than you have in your pocket right this minute, whereas you're probably not near your credit limit. 

I don't think that I personal spend more when I use a credit card because I personally have always been thrifty; however, I can't say that I've particularly studied my purchases to see whether I have a trend or not.

I can see that merchants would probably like us all to ditch cash and spend . . . the theory being that people would spend more. 


Jamesqf

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Re: End of Cash = ?
« Reply #11 on: October 08, 2013, 11:57:24 AM »
If you're spending cash, you have to spend less than you have in your pocket right this minute, whereas you're probably not near your credit limit.

But in my case, at least, that just translates to more trips to the store.  For instance, when I first bought my house, I was making trips to Home Depot every couple of weeks, and mostly paying cash, to pick up whatever I needed for the current project.  Then I got a Home Depot credit card that offered zero interest for a year or so on purchases over IIRC $300 or so.  My shopping pattern immediately changed to one pickup-filling trip every 6 months or so.

Apocalyptica602

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Re: End of Cash = ?
« Reply #12 on: October 13, 2013, 05:48:04 PM »
I've read in numerous places that people who use a credit card tend to buy more than people who are paying in cash.  It does stand to reason:  If you're spending cash, you have to spend less than you have in your pocket right this minute, whereas you're probably not near your credit limit. 

I don't think that I personal spend more when I use a credit card because I personally have always been thrifty; however, I can't say that I've particularly studied my purchases to see whether I have a trend or not.

I can see that merchants would probably like us all to ditch cash and spend . . . the theory being that people would spend more.

I'm the opposite when it comes to spending more. I use credit for >90% of my transactions. When I have more cash on hand than usual or find myself in a situation where it's generally easier to use cash, I generally find that it just 'goes'.

I think this is probably because if I have the cash in my wallet it's already considered 'spent' as far as my account balances are concerned. (Yes I know you can deposit cash back in, but I don't take it out just to 'have on hand' typically)

Whereas with my credit card find myself holding back because I tell myself 'You're going to see this bill at the end of the month and WILL be paying it in full. So it'll suck when  you're accountable for a month's worth of stupid impulsive decisions all at once'.

KMMK

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Re: End of Cash = ?
« Reply #13 on: October 13, 2013, 06:16:24 PM »
I've read in numerous places that people who use a credit card tend to buy more than people who are paying in cash.  It does stand to reason:  If you're spending cash, you have to spend less than you have in your pocket right this minute, whereas you're probably not near your credit limit. 

I don't think that I personal spend more when I use a credit card because I personally have always been thrifty; however, I can't say that I've particularly studied my purchases to see whether I have a trend or not.

I can see that merchants would probably like us all to ditch cash and spend . . . the theory being that people would spend more.

I'm the opposite when it comes to spending more. I use credit for >90% of my transactions. When I have more cash on hand than usual or find myself in a situation where it's generally easier to use cash, I generally find that it just 'goes'.

I think this is probably because if I have the cash in my wallet it's already considered 'spent' as far as my account balances are concerned. (Yes I know you can deposit cash back in, but I don't take it out just to 'have on hand' typically)

Whereas with my credit card find myself holding back because I tell myself 'You're going to see this bill at the end of the month and WILL be paying it in full. So it'll suck when  you're accountable for a month's worth of stupid impulsive decisions all at once'.

I agree. I don't get paid in cash, so it doesn't feel like real money to me. Real money is electronic. It shows up in my bank account and I can move it into savings. I would only put cash back into the bank if I had the unusual situation of selling something or getting a gift. Cash is too easy to spend, once it's taken out of my bank so I try to limit what I carry, so I'm not buying food and coffees all the time. My credit cards have huge limits, but since I never carry a balance it doesn't affect my purchase decisions. Maybe it's different if you've ever used credit cards for the credit. I've only done that once in 20 years. I think I carried a balance for a month or two when I was between jobs. I only use credit cards for convenience, much easier tracking, rewards, and to limit my spending.

markbrynn

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Re: End of Cash = ?
« Reply #14 on: October 14, 2013, 06:32:11 AM »
To indirectly answer Ottawa's question about who has the incentive to change the use of credit cards: one answer is the merchants. They pay some percentage on every purchase (usually 1.5 - 5% from what I've read), which they have to cover out of their profits or increased prices. If there is enough solidarity among merchants or momentum for lower prices vs. credit card availability, it is possible to force people away from credit cards.

In the Netherlands, it is quite common for credit cards to not be accepted in many stores. It might be seen as inconvenient to customers, but PIN passes (equivalent of debit cards I guess) are available almost anywhere. I'm sure there are some people who care (tourists mostly), but if you're used to it, then you just adjust accordingly. While there are some advantages in using credit cards (not caring around cash, protection against fraud), the big advantage of cash back rewards is really not a reward at all. You pay a 4% fee (passed on through higher prices) to use the credit card and the credit card company gives 1-2% of that back to you. The other 2-3% goes to protecting you against fraud, printing pretty cards and profits.

I'm actually guessing on where the money goes. I don't know anything about the economics of credit card transactions, but I think the point is understood.

Cinder

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Re: End of Cash = ?
« Reply #15 on: October 14, 2013, 07:58:53 AM »

Hmmm:
Quote
“Unless something is done by intervention, we might end up in a situation where these payment [methods] further feed into impulsive behaviours. We can build in safeguards in the system. In my research, one of the things I find is that people forget how much they spend; but if you give them feedback by simply reminding them, people correct their behaviour.”

I don't disagree...but, unfortunately, who gains by putting safeguards in the system?  Would a credit company fund this research and incorporate it?  Hell no!
Until then...this feedback will have to come in the form of a Mustachian style PUNCH IN THE FACE! 

I have notifications set up in at mint.com that go out when there is 'unexpectedly large' spending per category or transaction.  It doesn't really benefit anyone other then me, unless you consider that it is a nice feature that brings be back to mint.com for more page-views which increases the likelyhood of following one of their adverts and generating some ad revenue for them .

RootofGood

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Re: End of Cash = ?
« Reply #16 on: October 14, 2013, 08:12:16 AM »
I use cash for less than .05% of transactions.  I find the use of cash, while nostalgic, inconvenient.  I also find that cash doesn't reward me to use it.  Unlike my credit cards.  I now use 2 credit cards in a clinical manner to optimize cash back.  I estimate we get back 2% of all credit card transactions. 

Clearly the dissociation (between purchasing and the pain of actually paying) is anesthetised by (non-cash) payment for a majority of people.

One might argue that the decline in daily cash transactions has fuelled consumerism.  What do you folks think is a potential way to bring back that nexus between purchase and pain?

We use credit cards for virtually all purchases possible.  We are in the same boat, getting around 2% cash back average on all purchases.  The cash back and travel rewards add up quickly.  I didn't really think about the total amount per year we "earn", because it is usually $20 or $40 each month, which isn't much (on a $1000+ CC bill). 

Then I started thinking $40/month for 12 months is $500 per year, and that is just on one card!  Add to that the float that comes from buying something and not repaying the purchase amount for another 30 to 60 days.  That's a free loan. 

I added up the savings from cashback and float, and it comes out to around $1000 per year.  That's a decent amount of money, so I figured this would make a good blog post topic.  I laid out the case for using credit cards for everything you possibly can here:
http://rootofgood.com/charge-everything-on-the-credit-card-most-bizarre-financial-advice-ever/

The blog post assumes a typical non-mustachian household that spends $3k/month.  Sorry, mustachians, your low spending ways mean you can't get back $1000 per year from the CC companies!  But on the bright side you are saving tens of thousands of dollars per year by not jumping on the consumerism bandwagon.  :)

I understand the argument that says credit cards make you spend more, and that may be true in general.  I doubt it would make a difference for our spending habits.  If I had to pay cash for everything, I would just stock my wallet and Mrs RootofGood's purse with a fat stack of hundo's.  We just don't spend money on ridiculous unnecessary crap.  But I love simplicity, and credit cards are simple.  I don't like wasting time going to banks or ATM and dealing with cash, and change, and manually tracking spending that cash would require. 

So in summary, we earn close to $1000 per year using credit cards and save a ridiculous amount of time by using CC's.  Even if we spend an extra $1000 per year because CC usage makes us frivolous shoppers, it is offset by the convenience and cash back/float savings. 

« Last Edit: October 14, 2013, 08:16:36 AM by RootofGood »