What you'll learn
Brits love their cash but usage is declining particularly with millennials and to a lesser degree among baby-boomers. According to a study conducted by Money Super Market, over half of 55+ year old's regularly withdraw cash to make sure they have money on hand, compared to only 22% of 25-34 year old's. But is a cash-less society good for you? Could this irreversible movement have unintended consequences on your spending and debt? Let's put this to the test.
Paying cash makes you think twice before spending money
The Financial Services Research Forum is widely known as the UK's most distinguished group for the understanding of financial behavior. They seek to inform policymakers such as The Financial Conduct Authority in the UK who acknowledge the importance of cash in society. They recently reported the "move to online [or a cash-less society] can mean that consumers with poor digital literacy or limited internet access have increasingly limited choice."
Leading behavior economists in Professor Nina Mazer and Dilip Soman believe paying with cash makes consumers feel more mindful about spending. For example, when faced with a limited amount of cash in their wallet, people become more self-aware of their spending habits and feel "angst" when paying cash. In our interview with Mazar, she explained this further.
She and her colleague Mr. Soman conducted a research study and gave each participant equal amounts of cash to spend in four separate envelopes. The research found that each time a participant opened an envelope, he felt discomfort (or "pain") parting with cash and seeing the amount deplete. They concluded that using cash makes people think twice before spending money.
Manage spending in your digital wallet
The digital wallet is growing with bitcoin, Google Wallet, Apple Pay etc. There are so many options for consumers. And, according to Money Super Market, over a third of Brits (36%) believe they live this way already, using contactless payments whenever possible.
But, unlike the angst people feel spending cash, there might be relatively little emotion with a digital wallet. This could lead to overspending. And if you don't keep track of your spending habits, it may be challenging to meet financial obligations at month end.
And, there is a growing segment of fast & easy online micro-lenders. They offer short term loans at high interest rates for people who have temporary shortfalls in cash flow. They are very popular in China. In the UK, Klarna, just launched a service to facilitate “buy now, pay later." And toward what end?
Take charge of your money
With so much inducement to spend and access to your money, you are going to have to stay on top of your financial situation. Here are 4 easy tips to keep spending (and debt!) under control:
Set simple financial goals: Not only will you boost your emotional well-being about money, you will feel more in control of your life and where you are going.
Evaluate how you spend money: Before you tap, swipe, click or confirm, think twice. Try to identify what triggers your spending.
Use an online app to budget: Track your spending. Spend within your means. Use cash if it helps you manage your money better.
Consolidate debt: If you have debt, get professional advice. Consolidate debt and become debt free sooner.
The future looks bright. Whether it's Chatbots or apps, artificial intelligence will make it easier to budget, stay on track, control debt and achieve your financial goals. We're almost there!
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