Cash vs. Credit Card: Is Cash Only the Way to Go?
What happens when you ask college students to hide their debit and credit cards and go cash only?
After making them keep track of all of their expenditures for a week, I do just that. Based on their first week’s spending, my students take cash from an ATM, that must last them an entire week. No cheating! They then answer a number of questions about their experience.
What was my motivation for making the students go through this? Well . . .
Before the days of ATMs and debit cards, this was how you managed your financial life. It was all in cash (which you got by going to the bank and cashing a check). Ah, the good old days.
To this day, if I face a financial rough patch, my cards go into a drawer (except one for emergencies) and I go cash only. It certainly eliminates my impulse purchases!
I believe that there’s something to the kinesthetic experience of touching the cash. It always helps to see how much you have left to spend.
I worry that part of the reason the younger generation is clueless about money is that, apart from a childhood allowance, they never see it or touch it. They purchase everything with a swipe. And income, even from babysitting, can be paid electronically.
My Experiment With Going Cash Only
I’ve been running this experiment for the last 18 months with students ages 18 to 22 at Oberlin College, a private liberal arts college in Ohio.
When I first explain the experiment, it slowly registers across the room what I am asking them to give up. The typical reaction is one of mild shock — eyes open wide, jaws drop. I think the hardest thing for the students is when they realize they can’t order anything online for a week either.
I do allow a few exceptions to the all-cash rule, such as rent, textbooks, and medical emergencies.
Cash Vs. Credit Card: My Students’ Responses
While I didn’t track the statistics, I can attest that the majority of these students recorded that using cash felt very different. What’s more, the majority of them spent less than usual, which is exactly what I expected. By going cash only, they were forced to make spending choices they had never faced before.
Here are a few of the responses to the question, “Was the purchase experience different with cash? Did your spending behavior change?”
Becoming More Money Conscious
“I tended to take longer at the register to put away change and gather the correct amount of money,” Celia said.
“My spending behavior changed for the better when I used cash. I was able to physically see how much I was spending versus mindlessly swiping a debit card.”
Rachel had similar feelings. “I would normally use my debit card, so actually, physically watching my money disappear was significant,” she said, adding that it was “interesting how technology/’e-money’ can skew that . . . I just ate out much less/made time to make coffee at home.”
“Physically handling the money and handing it in for payment felt quite good, actually — even relieving,” Cesar recalled. “Having already budgeted for the week’s expenses, I didn’t need to worry about where my bank account would be by the end of the week’s expenditures. I already knew where it would be once I made my initial withdrawal of the week’s cash,” he said.
Sometimes Going Cash Only Makes You Spend More
A few had a quite different response:
“With just a card, I always feel like I have very little money left to spend,” Michael said. “Carrying cash actually made me more confident, despite the steep drop in spending for the second week,” he added.
According to Lily, “cash definitely alters my spending habits. When I have cash, I see money as more available and it makes me spend more freely. However, it also is a visual reminder of how much you are spending,” she said.
Lillian, who dipped into her (expected) extra tip money midweek, said, “While I spent more when using cash, I was much more aware of how much was going out of my pocket. So my behavior didn’t change . . . but I was much more aware of my choices.”
Reasons to Keep Emergency Cash
A hurricane, flood, zombie invasion — there are so many disasters that could hit at any moment. If you need to leave your home in an emergency, you’ll need to have enough to pay for a couple of days worth of food, lodging, and maybe even transport to somewhere safe. And for weapons, because of the zombies.
Loss of Power
Picture this: The power’s been out for a week; you can’t use your cards or withdraw money from an ATM; your husband has burned through all the expensive Yankee candles. For this very reason, Reddit user Yackitysax keeps $1,000 cash in their wallet at all times in $100, $50, $20 bills. They also have $10,000 in $100s divided into $1,000 portions, in 10 different locations. Because you never know.
If someone stole your identity and you’re locked out of all your accounts, would you have cash on hand to get you through until the issue was sorted out? Identity fraud is not a joke, Jim!
In addition to having emergency cash on you, it may be wise to have identity theft protection through a company like LifeLock.
You Need to Move Out Suddenly
It happens — an unexpected breakup, a gas leak, a shady landlord. Moving is always expensive, and if you need to put down a new deposit quickly, cash is king. I never trusted that landlord, anyway.
So you’re driving along in the middle of nowhere and your car suddenly sputters to a stop. The nearest repair company doesn’t take credit cards. This is when cold, hard cash comes in. Stashing some in your glove compartment is always a good call — just make sure you lock it up.
Additional reporting by Emma Finnerty