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Is Cash on the Way Out?

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CashPeople still say that “cash is king.” However, the actually paper money representing cash might not be king anymore. Indeed, cash is probably on the way out. According to CNN Money, 43% of adults go a week at a time without making any payments with cash. I know that I’m guilty. While I always have a few bucks in my wallet, I’m far more likely to swipe a debit card or a credit card.

With fewer and fewer people actually pulling out the paper money to make payments, there is talk of the demise of cash. After all, plastic is just way more convenient. And the way things are going, carrying a debit or credit card might soon be a thing of the past as well.

Trading Cash for Convenience

It’s inconvenient to carry around a wad of cash. It makes your wallet fat. It’s annoying to stand there and count out your cash as you make a purchase. It takes more time. And, of course, if you run out of cash you’re done shopping if you don’t have a back up card. Debit and credit cards offer you flexibility, ease of use, and a way to keep shopping — even if you don’t actually have the money.

However, I’m even more likely to buy things online. Forget swiping some card; a number of online retailers accept PayPal now. Even Home Depot accepts PayPal at the point of sale terminals in its stores. I rarely even have to pull out a card and type in the card number when I’m making online purchases. My money, which mostly comes in the form of bits and bytes, rarely even makes a physical appearance in my life.

Even those who don’t work remotely as I do rarely have to touch their money. Direct deposit means the money just appears in the bank account. And various payment options, from stored credit cards on web sites, to digital wallets, to credit cards, to automatic debit, mean that actually handling cash is hardly necessary. Only a few holdouts remain in the offline world.

The Cost of a Cashless Society

Even as the convenience of a cashless society is extolled, though, it’s important to consider the costs. One of the costs of a cashless society is that consumers tend to spend more. While this might be great for the economy, it’s murder on the savings rate for individuals. Without seeing your cash dwindle, it’s easy to just keep spending. Various studies indicate that we spend more money when shopping with plastic than when using cash.

Additionally, costs rise for everyone when plastic is used so much. Card processors and issuers charge fees to stores. Transaction fees and other fees are common, and that raises prices for everyone because you know that store owners aren’t absorbing these costs; they pass them on to customers. As a result, even those that do pay cash end up paying a little bit more — even though they aren’t using credit cards and paying interest.

What do you think? Is going cashless a bad idea? Or a good one?

(Photo by bfishadow)

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15 Responses to “Is Cash on the Way Out?”

  1. Miranda,
    I fear a cashless culture. It’s hyperbolic to think about it, but if we were ever purely cashless, does that affect currency? It’s a standard we’ve come to know. But without cash, would we just say something costs X credits?

    Also, when you pointed out how going cashless would hurt the savings rate I cringed. Not every consumer is great at saving money as it is.

    I’m a big proponent of cash. In a small town, it’s easy to shop at local places. So I make an effort to use cash as much as possible, especially at local establishments.

    -Christian L.

  2. zapeta says:

    I hardly ever carry cash and almost always use my cards. That being said, I try to use cash on small purchases at local businesses so they don’t have to eat the credit card fees.

    • NateUVM says:

      Most businesses, if they already accept credit cards, have priced their items to cover the fees. By paying in cash, you are making sure they don’t get hit with the fee, but that’s because you’re theone getting hit with it!

      In the end, it ends up as a bonus to that business, so if you are trying to support that business by using cash, you are acheiving your goal. Just realize that you’re not saving them a fee, you are giving them a bonus!

  3. Shirley says:

    Going completely cashless would present some problems although they may seem small.

    How would I tip the paper carrier, the waitress in a small cafe, the hairdresser or barber, the neighbor boy who offers to help carry in my groceries? Would I give the kids a plastic card for a weekly allowance or chores? The local handyman would have to start accepting credit cards.

    While I agree that using cash is becoming less of a practice, I think that going totally cashless would just open a new can of worms.

    • NateUVM says:

      Don’t forget that checks, while not electronic, still count as a “cash-less” method of payment. They’re a proxy for the actual money (a promise for a bank to deliver funds to cover it, when presented). It seems that at least a couple of the transactions you mentioned could already be cash-less, so you may already be more cash-less than you realize!

      Tipping the kids carrying your bags…? Yeah, you kinda need cash for that, though, don’t you! Be sad to see that tradition disappear…

  4. I rarely ever use cash and I find it is so much easier to track your spending when you dont use it. However I semi-agree that having cash on hand may cause you to spend more. The reason I semi-agree is because if you have someone to hold you accountable like your spouse or even yourself. Reviewing your budget will reveal all those purchases that you probably should not have made. With cash you are less accountable because you can be vague or you may simply forget.

  5. JoeTaxpayer says:

    I agree that cash is fading. But as the statisticians say, it will have a “long tail.” In other words, a slow, steady decline in the cash portion of M1 (the technical term for cash and cash equivalents). As the current generation of older folk passes on, the next generation will be used to the technology, and ease with which we use cashless money.
    Every few weeks, my daughter gives me a wad of cash, a combination of accumulated allowance and babysitting cash. She wants no part of it. She prefers to let us charge her purchases, and debit her account. There are many ways to send small amounts of cash, and even the newsboy will be tipped electronically.

  6. Phil says:

    I always carry a small amount of cash, even if I don’t intend to use it. In part, because the communication system required for a cashless exchange at any given merchant does not always work in the best of times. More importantly, when you go through a major event like an extended power outage, the system is almost guarenteed not to work consistently…and when you need gas to run a generator, your choices may be cash or no gas. (Just went through this experience and cash was a necessity…many places had spotty or no credit card access for more than a week…btw, cellphone service is also impacted by major regional events like these. They also tend to become unreliable for extended periods of time)

    Additionally, for the commenter that said that you are giving the retailer a bonus by paying cash rather than saving them the credit card fee…that is only true if the retailer has true pricing control. For places like gas stations were distributers set minimum pricing, the fee truly does cut into their profits. For many national brands (clothing excluded), minmum pricing is set by the manufacturer or distributer and a store risks loosing the right to sell that item if they routinely undercut the price. They can also be limited in their ability to increase price to compensate for those sort of fees by cross-town competition.

    Finally, I believe carrying and using cash tends to limit your spending. Sales data indicates that consumers who buy with credit tend to spend more, not less. Making a point to use cash for spot purchases will help limit your over-all spending habits and help you manage your personnel budget better. The more you use credit, the more you will tend to spend.

  7. Jon says:

    I am not a survivalist or anything, but a society without physical currency is a society that is one EMP attack away from having no way to transact business. A society that performs its business without physical currency is also a society that can be easily controlled, monitored, and manipulated, all in the name of convenience. Cash may be inconvenient, but for the sake of your family, think through what you would do if the power went off for a week, or a month, and keep some kind of physical currency on hand that would help carry you through. No matter how much faith we put in the institutions that make our amazing modern life possible, we are always one major disaster away from a life that temporarily resembles the 1800s.

    Regarding the message about a free “gift” to a local biz by paying cash, it is a matter of semantics. At the end of the day, the small biz ends up with more money and a large card processor ends up with less if we pay the small shop with cash, no matter the basis for the pricing. I really like the idea of supporting the small business folks who slog it out each day to give us an alternative to Big Boxes by giving them a 2-3% boost to the bottom line, and will incorporate this more into my way of doing business. Take care!

  8. Jim says:

    I actually find that using a debit card helps me spend less. I use Quicken and by using my debit card I can track my spending more accurately rather than seeing a black hole of where the cash went.

  9. Tony says:

    There will never be a cashless society because of the World Global Market, 3rd, 4th and 5th World countries still use the US Dollar as their currency and they are not electronic or high tech. Therefore the US will still produce coin and paper money

  10. Emilio P says:

    Agree that keeping small amounts of cash is still a must.
    Also it still gives some privacy for some perfectly legal transactions; like going to the pharmacy and not letting them able to track you when baying certain over the counter personal products. Small amounts of decency goes a long way

  11. Deborah says:

    You know some gas stations offer a discount if you pay cash, and now many are discontinuing that. Still they claim they have low prices. I think there should be a discount for any item paid for with cash. That’s the only way to make sure we’re not charged the bank fee, isn’t it?

  12. tacra says:

    While a little late commenting on your article, I see a very disturbing trend with going cashless. Privacy. You loose it using anything but cash. What does that mean?

    * Your card issuer knows everything you buy and could be forced to turn over those records to government agencies for any number of reasons. Those things bought with cash are off the radar.
    * Your card issuer may choose to make a little money by selling your information to advertisers. They’ll start targetting ads at your specifically. Some of which might be very embarassing.
    * How about typing your medical care (aka healthcare) with your history of all purchases? They’ll be able to do that. Just imagine the effects of that.

    The second problem with going cashless is what happens if the electrical or communications grids are knocked out for days or even weeks? It might even take months depending on the extent of the damage to repair those systems if they’re even repairable.

  13. Vee says:

    I understand some will always prefer cash and that’s perfectly alright. However, I am very eager to eventually move to a completely electronic system. I am very tech-oriented (even my degree is IT), so that may explain my feelings, but I just see a lot more benefits going cashless.

    Back in the days when I still preferred using cash, I remember always having to count my money before going shopping and having to stop by an ATM if I don’t. I remember walking at night or going to the bank to deposit money and being very nervous because I’m not in the best part of town and I’m carrying a considerable amount of funds on me. I recall having to keep change all over the place and then having to head to a coin counter (and paying a fee) to get it exchanged for cash.

    Why in the world would I want to go back to THAT? Now I no longer have to worry about having to stop by an ATM before going to the grocery store, now I no longer have to fear getting robbed (because I can easily give the crook my whole wallet and a few phone calls will have all my cards cancelled), no more getting coins back, and, perhaps best of all, hundreds of dollars in rewards without ever paying a penny in interest.

    Honestly, the only thing I still use cash for nowadays is as gifts to children. Even then, I’ve been mulling over the merits of giving VISA prepaid cards to my nieces/nephews.

    Frankly, if it was up to me, everything would be electronic. And I do mean *electronic* — with all my credit cards being used through my smartphone (‘Google Wallet’ or another such service). I’m also of the hope that, one day, I won’t even need a wallet anymore, but that everything can be done through my smartphone.

    I know — I’m probably on the more extreme end of the cashless group, but frankly, I think switching from cash to using credit cards was a great thing for me.


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