Today, I wrap up my two-week experiment using cash. It was an utter failure, and I hated using cash. What I’ve gained in coinage, I’ve lost in faith in the all-mighty dollar. While I tried to look for positives from using cash, I found my little experiment to be quite telling. Credit and debit cards are now a fundamental part of my purchase process. I’d take a slim credit card with benefits over the greenback.
Coincidentally, as my experiment ended, a recent story about the costs of cash was published on CNBC. The article pointed to recent research that suggests that cash costs as much as $200 billion per year to the American economy (Chakravorti & Mazzotta, 2013). This study sounds an alarm: businesses, consumers, and the federal government are suffering the consequences of cash usage. The old vestige is detrimental to everyone involved.
Time and fees add up to serious cash costs. From foreign ATM/Transaction fees, account fees, time spent (trying to access cash via ATMs, banks, etc.), and thefts of cash, billions of dollars are lost. For consumers, the primary loss is incurred in time spent getting cash. Turns out that searching for and accessing money via an ATM actually costs America more in time than the fee associated. For businesses, the largest detriment is in retail theft, as many companies can’t afford Brinks trucks and armored protection of funds. Lastly, the governmental cost is monumental. Due to printing costs, management, and uncollected taxes (due to cash-based avoidance of taxation), the government loses about $100 billion from cash.
Fundamentally, cash should be dead, but there are a number of holdouts and reasons to worry about the decline. Cash is one of the only methods for private transactions (non-traced), can help manage out-of-control spending, and can even be advantageous when buying things like gas. Likewise, wealth gaps are leading to more cash users in lower incomes – inaccessible to newer banking technologies for a variety of reasons.
Generational differences may change all of this. Younger generations (those under 25) carry far less cash, when compared to older adult populations. (65 and older). As I struggled to use cash, it dawned on me that I haven’t used cash every day since middle school/high school. It doesn’t come naturally to me, and I’m looking forward to using plastic again.
Resources:
http://www.cnbc.com/id/101103705
Kat says
I’m sure you’ll make it all work, no matter how you choose to do it. Cheers! 🙂
Sam Lustgarten says
Thanks Kat!
You’re comments always inspire.
-Sam
Ryan Finlay says
People tend to be irresponsible when using plastic to pay for goods. They don’t feel the money physically leaving their possession. Credit card companies know this. It’s probably not too much different with debit cards. Taking cash away will hurt those that need to use it the most; those that aren’t wise with their money.
midlifefinance says
That’s crazy talk man. I love cash. I don’t pay any fee and it’s not costing me anything. I spend more time on the toilet. How much is that costing the economy?
Cash is King Baby!
Kat says
We may not agree, but it’s still his choice. At least he tried.
CG says
Weird, I have been using cash for many years, and I have always been able to save way more money than when I was doing the credit thing.
Sam Lustgarten says
CG,
Thanks for your comment. There are definitely important individual differences to consider. If cash is working for you, perfect! Stay with it.
All the best,
Sam
mangeek says
One way to reduce the impact would be to re-baseline cash to values that actually matter. I want to buy a sandwich with a coin, and anything under a quarter is really just silly to bother calculating.
I’d be happy if we had Quarters, $1, $2, and $5 coins, then $20 and $100 notes.
Getting a slice of pizza is between $2 and $5. Going out for a movie and drinks with the GF costs upwards of $100 once all is said-and-done. Why am I dealing with nickels and pennies when those kinds of amounts are where the world is?
Sam Lustgarten says
Mangeek,
That would help immensely! Wow, what a great idea. By rounding our numbers, we would have a much more flexible system.
Thanks for your insight!
Sam
BlueFoot says
I wonder what the cost is to business? I believe to use my debt card / credit card, a store must pay like 15c + 1%. So while ATM fees costs 6B a year, how much do all businesses pay for using credit cards. I feel that part is missing.
Steve says
Uhhh… “America” is not the US government, but the people. You can’t just say that loss of taxation (overcharging of people for products/services) is a loss for “America”. No, it’s a loss for politicians, and an overall gain for the customers since businesses can avoid raising prices or lower them since the cost of taxation is negated. Lower taxes = win for Americans, in exactly the same sense that lower cost of production = lower prices.
no justice says
The author did not address the extra costs of using cards. Businesses need a higher profit margin because of fees….
Sam Lustgarten says
NJ,
You’re right. The authors of the research weren’t looking to compare costs to credit cards. Each payment method incurs some cost to someone. The problem is that credit processing is engrained in our society – no cash discounts for most.
Thanks for pointing this out,
Sam
jw says
This is definitly a one sided argument. Of course the banks want you to believe that cash isno good and that using debit/credit cards are better. They make loads off the fees charged for debit annd credit purchases and another round of money off the interest charged on credit purchases. The government can’t stand cash of course because it is completely untracable. Don’t buy into the hype. Think for a minute as to why the government and the banks are so quick to bad talk cash. Most business and almost all individuals would accept cash over cards any day of the week and most businesses (small businesses anyway) will actually give a discount for cash payment since they get to avoid large fees. Young folks would be smart to take another look at the benefits of using cash. An if nothing elsee is too convincing then just look at what happened to the people of Cyprus earlier this year. We saw what happens if you keep to much cash in the bank when the government needs a bailout. Think it can’t happen in the US? Keep thinking that way and I’ll be laughing all the way to my mattress.
Sam Lustgarten says
JW,
Thanks for your comment. I think it’s important to be critical of this research, but also see how there may be some truth in these cash costs. Would love to know more of your opinion after reading the research document.
Thanks again,
Sam
Somebody says
Cash means privacy.
Sam Lustgarten says
At times, you’re right, cash can mean privacy. It’s a valid piece of the puzzle. Maybe better anonymity with credit and debit cards is necessary…
Ben @ The Wealth Gospel says
I hate cash. I usually keep $20 in my wallet just in case I come across some archaic system that won’t take my card, but it’s become really inconvenient. But I wouldn’t recommend that to everyone. There is some virtue in having that “once it’s gone, it’s gone” mentality. A lot of people can’t handle credit cards because they have no self-control. So there are some good reasons to keep it around.
Kathy says
People need to do what’s right for them. Avoid peer pressure, whether it be friends, acquaintances, blog readers, or media/corporations. At the end of the day (overused expression, but in this case, I’ll make the exception), the only person who has to live with what you do is you.
Harrison says
Wow! Weak article. Credit cards are a much greater detriment to America (and individuals) than cash. Credit cards are responsible for the Americans falling further and further into debt. They’re responsible for Americans losing their ability to budget, balance a check book, and other essential financial tasks. They’re responsible for the birth of consumerism and the rapid acceleration of materialism. Beyond that, 731% more money is stolen every year through credit card fraud than cash theft. Businesses also experience a greater loss of profitability due to the use of credit cards, especially businesses that sell low cost essentials they’d sell anyway (i.e. whether the buyer had a CC or not). Bashing cash is like bashing domestic tap water for minute, harmless chemicals in it, when the alternatives are sodas and booze.
Sam Lustgarten says
Harrison,
Thank you so much for your comment. I appreciate you pointing out the consequences of credit card use. You’re right, there are a number of fees associated with those transactions. It’s hard to say how credit and cash compare. What is known is that cash has costs. That’s what this research was suggesting.
Personally, I’ve struggled back and forth with cash usage. I love it and hate it. Great for keeping within budget. Crappy for keeping track of spending efficiently. I hate carrying change and bundles of receipts.
Again, thank you for your insightful comment.
Sam