If you're at least as old as I am -- and I'm 40 -- you probably remember those little red clicky plastic things that people once used to keep a running total of the cost of the items in their grocery carts. I don't remember what they were called, but they were just simple mechanical calculators. The one my grandmother used had three or four white buttons on top, and clicking them would advance little wheels that showed numbers through little windows.
The idea, of course, was that back in those pre-debit-card, pre-ATM days, you went to the grocery store with a certain amount of cash in your pocket or purse, and you used the clicky thing to make sure that the total price of the groceries in your cart didn't exceed what you had on hand.
I haven't seen one of those things in years, probably because hardly anyone ever pays cash for groceries anymore. But I was reminded of them by a recent email from a reader, who, following the advice of a pop author in the personal-finance arena, bagged his credit and debit cards and started paying cash whenever possible. He says it was a great way for him to make sure he was staying within his means.
Color me skeptical. Here's why.
To cash or not to cash
The idea that one should get off the credit-card carousel is hardly new advice. I could fill a lot of space (and bore you to tears) with links to articles and books recommending that readers throw away their credit cards. I think a rarely used credit card makes a great emergency fund, and except in extreme cases, I usually suggest that folks hide their cards in their dresser drawers rather than cut them up, if they're inclined that way. But I understand where the cut-'em-up crowd is coming from.
The case for giving up debit cards is a little muddier, but here's what the cash proponents say, according to my reader:
- Cash makes you more conscious of your spending. Paying with cash whenever possible -- rather than with a card of any type -- forces you to be acutely aware of the amount of money leaving your hands. I think that's a fair point.
With cash, you avoid credit card fees. True enough. Certainly, companies such as Bank of America
(NYSE:BAC)and American Express (NYSE:AXP), both of which see hefty cash flows from credit and charge-card fees, would prefer that you stick to plastic. But you'll still be paying fees for those out-of-network ATM cash withdrawals. And it's not hard to avoid most credit card fees, if you choose the right card and pay the balance in full every month.
- You can't blow your budget if you spend cash all the time. This just isn't true. You may not be able to incur credit-card debt, but you can certainly spend the rent money on cute shoes or stupid stuff easily enough.
Credit cards can make you fat. This one isn't actually from my reader, it's from a recent Bankrate.com article. The article pointed out the recent trend among fast-food restaurants such as McDonald's
(NYSE:MCD)and Jack in the Box (NYSE:JBX)toward accepting credit cards, and it argued that this made fast-food impulse control even harder. Maybe so, but if you're in the habit of carrying cash and you want a Big Mac, I don't think that having to spend actual money to get that burger is likely to slow too many people down. (Especially if you have kids.) I'm extremely unconvinced.
From where I sit, I'd say the all-cash-all-the-time program doesn't seem to be worth the hassle. There's a reason nobody uses those red clicky things anymore. It is certainly true that spending cash all the time is likely to make most people more aware of just how much they're spending, but I argue that you can get the same results by using a debit card and reviewing your spending every week or two. In fact, I recommend exactly that approach for people who are setting up a budget.
And while there are real security concerns with debit cards, if you lose a wallet full of cash, those concerns will seem pretty trivial.