Prudence will be the greatest casualty of the death of cash

The British Museum has a gallery devoted to money, and it is glorious. Early Chinese banknotes, Lydian coins fashioned from electrum, and great Polo mint-esque stone rings from Micronesia: it traces the history of payment from barter to Barclaycard, and it is a brilliant riposte to the idea that the value of money lies solely in what you can do with it. It has its own beauty.

Now, however, money is disappearing all around us as society fast becomes cashless. In the latest of a series of gloomy reports, yesterday the cashpoint firm Link warned that all free ATMS in the UK could disappear within two years, rendered uneconomic by the rise in digital payments.

Much has been written about the losers of this trend: the elderly, the rural, and those without access to traditional financial services. There will be winners, too, of course. But I wonder if the greatest casualty of all has been overlooked: prudence.

It is stating the obvious that it is easier to spend recklessly on cards than it is with physical money. With credit cards, in particular, some tend not to perceive it as “real” money, partly because the cost of funding the purchase is detached from the pleasure of the new goods. It is correspondingly painful to pay for things in cash, as you are physically separated from it. Many people use a weekly trip to the cash point as a budgeting tool to impose psychological and practical limits on their expenditure. I keep to a habit I developed as a student, of only spending on dinner the change left from what I have taken out of the bank that day. I feel disciplined and in control.

What will happen when cash is gone? Consumers are already awash with debt, and this while cash transactions remain a considerable proportion of the total. Then think of what is rapidly proliferating: smartphone banking, digital “wallets”, perhaps, one day, payment microchip implants. This is money disembodied, reduced to a few lines of code that only attain meaning when they are spent. Quite aside from the trust this puts in the banks not to fall over, we are building a system in which it is more attractive to spend than it is to save.

It is not impossible to be prudent in a world of digital-only payments. New services allow people to round up every purchase to the nearest pound and automatically save the difference. Intelligent online assistants inform you of the wisdom of your financial choices. Some banks permit you to create online “pots” for budgeting, and although children might get pocket money by app, it’s still only if they do their chores.

But the psychology of money matters: you can see it in everything from our reticence to fritter away on day-to-day expenses lump sums inherited from relatives, to the tendency to view refunds as free money. And the simple truth is that physical cash is easier to control and harder to waste.

Perhaps this would matter less if we had a culture in which saving was prized. But that was blown apart by central banks treating inflation as normal, and interest rates rewarding borrowers. Few people have any idea how financially secure they will be in old age, and an astonishing proportion of the population has no savings at all.

This is usually blamed on low wages, but it is a cultural problem, too. It is unsurprising that a country such as Germany, which treats savers with almost slavish respect, is also among the most resistant to dispensing with cash. Then again, they know very well the cost of reckless financial experiments.