Cost of going cashless
Cash definitely has its place, Hannah McQueen writes.
The future of supermarket shopping, is, according to Amazon, a queue-free, checkout-free experience. It works (when it does work) by requiring every user to swipe the app as they enter the store, then each item they take from the shelves is added to their virtual cart and the transaction goes through automatically as they exit the store. Their wallet is basically redundant.
Despite the irony of people queuing up for the chance to try the queue-free experience, who doesn’t want to make the weekly supermarket ordeal easier?
The problem is, it’s just one more example of how innovations in financial technology are disconnecting us from how we spend.
Studies tell us that the wider the disconnect between paying for something and feeling the pain of parting with your hard-earned money, the more you spend.
The more you spend, the slower your progress, of course, but weirdly, the slower your progress the more you spend in frustration or ambivalence.
A recent report called Cashless City made a plea to governments around the world to increase the drive toward a cashless society.
It highlighted the time and cost efficiencies, and even went so far as to call for legislation to limit cash transactions, remove highvalue bank notes and make it impossible to pay any government agency in cash.
I was surprised at the intensity of the plea – but when you consider that the research was commissioned by and paid for by Visa, the vested interest becomes obvious, and so the frame of reference changes.
Visa’s NZ spokesman noted New Zealand already has a pretty low cash-to- GDP ratio, but it’s worth pointing out that New Zealand also has a very high debttoGDP ratio – and the two are not unrelated.
Our debt to GDP ratio has steadily been worsening since credit cards were first introduced by Diners Club in the 1950s.
There is clear evidence that credit cards disconnect us from our spending and encourage us to spend more.
One study found people considered credit card purchases as being half as expensive as cash purchases, or, put another way they were willing to spend twice as much if they didn’t have to pay for it upfront (with their own money).
Another study suggested using a credit card versus paying in cash causes you to spend 30 per cent more. Paying with cash connects the purchase with the pinch of parting with the money.
Sure, in many instances it’s impractical to pay with cash, but for your most frequent costs you should consider using cash for a couple of months to see if you naturally spend less.
In fact, when I start to work with clients, I have them use cash for three months for their most frequent costs. This tends to focus on food and drink (groceries, takeaways, coffees, etc).
Due to the heightened awareness, clear targets (and possibly fear of me) clients typically spend 20 per cent less on these items during this time. Most importantly, this gives us a new data sample of what they can achieve if they’re connected with their spending.
Beyond the first quarter, I have no preference if they revert back to using cards or stick with cash, provided they hit the targets they set when they more focused.
The key here is the first step to financial progress is awareness. If society becomes even more cashless, then you must take steps to offset the proven tendency of spending more, by analysing your spending more rigorously, so to avoid the fritter creep.
Otherwise, the only ones who benefit from the lack of cash are the companies who provide credit at a cost – funnily enough, the same companies advocating a cashless society.
Cash might not be the most convenient way to pay, but patting down your pockets and finding them empty is the most effective reality check that you simply can’t afford it.
''For your most frequent costs you should consider using cash for a couple of months to see if you naturally spend less.''