Spend only cash? Really?

Recently I read an article that posed an intriguing question–what ever happened to our relationship with cash? The article, When using cash is better than credit, suggested that consumers should use cash instead of credit cards for day-to-day expenses. Why? Because psychologically money is more real when it is in the form of cash. Really?

Does that mean that spending is only real if we pay with cash in the form of dollars and cents? With that line of thinking then can one believe that paying the mortgage using electronic funds transfer (EFT) is not real?

The article pointed out the pain of paying is (apparently) only triggered when using cash and seeing it disappear from your hand. Does that mean that watching that mortgage payment subtracted from your bank account in cyberspace is not painful?

Not surprisingly, credit cards played the role of the bad guy in this discussion. After all it’s not our fault that the evil marketplace motivate us to swipe a card on an almost-certain road to debt. So credit cards are bad and we should carry only cash?

Shocking as it may be, we didn’t always have cash. At one time, back in the mist of time, consumers shopped around herding their flock of chickens hoping to barter for a new blanket.

Times have changed. Money has changed and will continue to change. Unfortunately, many consumers are not keeping up with the changes or adapting to them. Starting with bartering we continue to adopt new ways to spend money without completely getting rid of the old methods.

When bartering became unwieldy (e.g. too many chickens) physical tokens of exchange were invented. The advent of cash brought with it a transition stage, with many people not wanting to give up their chickens. But cash became the new medium of exchange for financial transactions and consumers adjusted

Then along came banks with bank drafts checks, written notes to transfer money from one account to another. Not everyone immediately jumped on the check writing bandwagon, but eventually we became comfortable with writing checks instead of forking over cash or chickens.

Enter credit cards, a new way of spending that allows consumers make many purchases and pay the bill when the statement arrives. Credit cards get consumers into trouble because they forget that they are buying with borrowed money. The problem is not the credit card; it is not paying the bill.

To make it easier to get cash, automated teller machines (ATMs) are open all day, every day. The ATM spits out that physical cash whenever we want it. Here too was another transition stage as people came to realize they didn’t have to go inside a bank or talk to a human teller to get their own money.

The next innovation was a card that let us spend like cash without cash. The debit card is the new cash, allowing us to immediately spend money in our account without need in to make a separate withdrawal. Notice how we have transitioned from spending physical cash to spending invisible cash.

The trend to electronic transactions continues with the ability to transfer funds on a computer or your mobile phone. Checks can now be deposited electronically using our mobile phones!

Yet we bemoan our relationship with cash? Given all the electronic capabilities to transfer money in and out of our accounts why are we clinging to a notion that spending cash is better for us psychologically?

Of course, cash today plays a different role in spending than it did when my parents got married before WW II before checkbooks were common. Of course, cash is used differently than when I got married in the 60s when credit cards were just coming on the scene.

Who knows what role cash will play when my grandchildren become adults? They are growing up in a society with an increasing mix of electronic money transfers using computers and mobile phones. Who knows what other forms of technology will be used in our money system in their future?

All of this reinforces the reality that money exists only as a number in an account. This number represents the money that people need to manage.

Credit and debit cards are new tools for taking a slice out of the pie that represents one’s money resource at any given moment. All this means that is more important than ever to monitor one’s cash flow and balances in the bank to make sure bills get paid promptly and on time.

Using cash is only one way to spend money. For most of us cash is mainly used for out-of-pocket expenses. An increasing number of essential transactions are done electronically: loan payments, paycheck deposits, insurance payments, etc.  In fact, many companies require EFT transfers for payment and deposits.

It’s interesting to note that with credit cards, one can still pay a bill with a check, but to pay with cash? I wouldn’t have a clue how to pay my own Discover or MasterCard bill with cash. And my local mall won’t accept cash for purchasing gift cards. Go figure.

The question isn’t about our relationship about cash, it’s about our relationship with money itself, in all its forms: cash, credit cards, debit cards, ATMs, and electronic transfers at our fingertips anytime, anywhere.

Kids (and their parents) will make better money decisions when they really see the “big picture” of their own money resource. With this knowledge people can analyze their spending patterns and make better decisions going forward, whether they use cash or any of the increasing number of cashless money tools. After all, isn’t informed decision making the essence of successful money management?

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