In honor of the upcoming cash spending experiment I wanted address the benefits and drawbacks of spending cash. I will revisit this list after the cash experiment to see if I have anything to add or critique.
Benefits of Spending Cash
- First and foremost, spending cash makes it impossible to spend more than you have. Going into debt is impossible with cash.
- Forces us to face the consequences of a purchase up front rather then delaying it until after it is too late. Thinking through the consequences of a purchase may change your decision. By consequences, I am talking about making needless purchases, over-priced purchases, impulse buys, and even spending money that should have been designated to other areas. With plastic a lot of this information is gathered well after the purchase, and by that time it is usually too late.
- Spending cash constantly reminds us of the value of a dollar. Buying a fancy $4 Starbuck’s coffee on plastic can become so much of a habit that we become oblivious to the fact that real money is changing hands. The consumer industry would love to make consumption as much like a video game as possible, they benefit when you forget what your money is worth. In this day and age with direct deposit, automated payments, and credit cards it is possible to earn and spend money without ever physically seeing any of it. It even kind of sounds surreal when you describe that way.
- Spending cash hurts. This may not hold true when buying a pack of Wrigley’s Juicy Fruit, but it sure does when filling up an SUV at Sunoco. Psychologically, parting with cash is much tougher than swiping a card.
- Paying with cash is faster. No waiting for signatures or authentication. Hand over the the cash, get some change, and you are done. Stores have ‘Cash Only’ lines for this reason.
- A fringe benefit is that paying with cash can put more profit per purchase in the store owners pocket by avoiding the credit card company fees. For me I would rather give a little mom and pop shop some extra profit than line the pockets of the credit industry. This point maybe nullified if spending cash significantly lowers the overall spending in a given store.
Drawbacks of Spending Cash
- Convenience, Convenience, Convenience. The hassle of finding proper ATMs, making sure you have enough for large purchases, and saving receipts to track your purchases makes using plastic make more convenient. Spending cash seems annoying, but I will see how annoying it is during the cash only experiment.
- Security. Lost your wallet? You can probably kiss your cash goodbye. Plastic affords you extra security measures that cash just can not offer.
- Credit card rewards. If spending cash proves to cut my spending by more than 1%, rewards won’t matter. I included it because rewards are where the credit card users get all worked up. They get quite passionate about their rewards. Free money, right? I suspect the credit cards companies are armed with more information than the consumer. We will see if credit card companies have done a good job blinding us with rewards.