The Times Are Changing
The world is phasing out paper currencies for digital, plastic forms. Credit, debit, and secured cards are increasingly occupying wallets. Despite recent declines in the 18 to 21-year-old demographic (due to the CARD Act), 78 percent of Americans have credit cards (Link). We have voted against the greenback, and replaced it with digitized numbers that represent the possibility to spend. But, this is placing us at risk for increased debt and instability.
Various financial counselors recommend cutting up your beloved cards to control spending. These advocates argue for a cash-based budgeting system. Usually, a series of envelopes represents the different domains of life (rent, car payment, groceries, etc.).
Dave Ramsey is the largest proponent of “cash flow” systems to managing your debt and money:
Grandma’s way to handle money still works. People used to always use cash envelopes to control their monthly spending, but very few do in today’s card-swiping culture. (Link)
Scientific research supports this system:
Credit helps to anesthetize the pain of paying, and it caused tightwads to nearly catch up to the spending levels of spendthrifts. (Link)
Their study found that subjects paid more when they were instructed to use a credit card rather than cash. In fact, they found that they were willing to spend up to 100% more with plastic. (Link)
Carefree & Cashless
The reality is that cash is slowly being phased out. Even if cash currencies still exist, the availability and acceptability may shrink. Businesses and consumers generally prefer the streamlined approach to cashless transactions.
Starbucks is a perfect example. Whether you have a credit or gift card, Starbucks’ iPhone app allows you to store your card information for purchases. All you have to do is swipe your phone and that steaming beverage is yours.
The ease of the cashless world is both tantalizing and horrifying. We can minimally travel, without bulky cash filling our pockets. A thin card gives us all the purchasing power we need. But we also risk spending more, going into debt, and suffering usury interest rates as punishment (try 25% or more penalty rates).
Unfortunately, the current financial gurus may be behind the technological times. The younger generations demand fungible, diverse transaction assistance (e.g., Bitcoin to PayPal to the iPhone’s Passbook). As noted, cash is dying. The old advice is dying. The conflation could be destructive to us all.
What’s The Solution?
Opinions are cheap; mine included. But, as a Millennial, credit card user, and cashless-cabin-aficionado, I believe we need to begin searching for viable solutions. As the masses segue to destructive spending patterns and digitized spending that distances us from the dollars depleting, we will suffer.
Forced spending control and scheduled punishments for poor purchases may be the last viable solution. Whatever happens, I hope we act before this bubble bursts.