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Is Cash on the Way Out?

People 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 [3], 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 [4].

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 [5] 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 [6], 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 [7] 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 [8] 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 [9])