Posted on Wednesday 29 October 2014
Imagine a world without coins or banknotes; a world where every transaction you make is carried out using your credit card, or even your smartphone. Around the world, cash is being used less and less compared to electronic transactions, and Canadians are among the leaders in this shift in the global economy. According to a 2013 study by MasterCard Canada , Canada is moving towards a cashless economy, behind only France and Belgium. By dollar value, only around 10% of transactions in Canada were carried out using cash. Cash tends to be used only for small transactions, and with contactless payment and even phone-based tap-to-pay services becoming more popular, even those uses for cash are under threat. So, is it time to throw away your wallet? Perhaps, perhaps not. Cashless living has its benefits, but it can also be bad for your bottom line.
Should I Go Cashless? The big advantage of going cashless is convenience. Instead of fumbling in your pockets and adding up correct change at the till, you can tap and go. No more bulky wallets. In some ways, it’s also safer. If you lose your credit card, you can cancel it and get a replacement without your bank account losing any value. Even if it was stolen and used, you have some recourse to get your money back. You can issue chargebacks against retailers if they don’t deliver your product. Cash, on the other hand, is easy to lose, and once lost is gone forever. You’re also at risk of human error: it’s easy not to notice that the store gave you incorrect change until you get home. While cards carry risks of their own, like card cloning, those are risks that we already take. If we already carry out most of our transactions electronically, going completely cashless wouldn’t make much of a difference.
That convenience, though, is exactly why there is one group of people who should absolutely not go cashless. If you are already struggling with budgeting and running up debt , it’s safer to use cash more rather than less. The more convenient it is to pay, the more likely you are to make an impulse buy without even needing to think. Cash is easy to lose between your sofa cushions, but using cash gives you an idea of how much you’ve been spending every time you look in your wallet. When you start to run low on cash, you naturally restrict your spending.
On the the other hand, your credit card statement probably only arrives once a month, by which time the damage can already be done. While you can and should track your spending online, its easy to avoid doing this. While credit cards are very useful, not least because they help you to build a credit history , people who have trouble budgeting would be better served going cardless than cashless. Even if you’re normally responsible with your budget, the one-tap convenience of going completely cashless can entice you to spend more, so if you do go in that direction, check your bank accounts regularly. Physically handing over cash is psychologically uncomfortable, tapping your card on a contactless reader less so. In any case, there are still some things that you can do with cash that you can’t do with cards or contactless payment. Not all stores accept cards, particularly businesses like market stalls or chip wagon, but also some brick-and-mortar stores. You can’t drop your credit card in a charity box or church collection plate.
On a more serious note, it’s a good idea to have a stash of cash in your home in case of emergencies. If your card gets stolen, you still need to be able to eat while you wait for a replacement. In short, then, going cashless is convenient, but by throwing away your wallet you trade convenience for the risk of breaking your budget. For people with great financial discipline, it can be done, although cash still fills niches that cards can’t. For everyone else, it’s a big risk.