Since we’re smack-dab in the middle of Financial Literacy Month (FLM), it’s the perfect time to look an interesting trend: the cashless society.
Like it or not with each passing year we’re moving increasingly toward a cashless society. Ask yourself this: when is the last time you paid for something in cold, hard cash? Cash is slowly, but surely being replaced with more convenient ways of paying – credit cards, debit cards and more recently, mobile payments.
While a cashless society has its benefits, it also has its pitfalls. Let’s take a closer look.
What is a Cashless Society?
A cashless society describes a world where we’re one day no longer going to need physical money – coins and dollar bills. Money will be replaced with other forms of payment, whether it’s credit card, Bitcoin or Apple Pay.
It remains to be seen if we’ll ever stop using physical money altogether, but with each passing decade cash is playing a smaller role. Want proof? Just look to the penny, which was recently taken out of circulation.
From ATMs to PayPass
Methods of payment are continuing evolving. Credit cards were first introduced decades ago and soon after, so were ATMs. Although they made it more convenient to spend, that convenience came at a cost.
Canadians watched their household debt mount with each passing decade. If that wasn’t enough, MasterCard and Visa made it easier to pay with contactless payment. Now you can buy something with the simple tap of your credit card via MasterCard PayPass or Visa PayWave. With the introduction of Apple Pay, buying a coffee at Starbucks is now as simple as tapping your iPhone.
Watch Your (Over)Spending
With cash so far removed from the transaction, it’s getting increasingly difficult to control your spending. Studies have proven we tend to spend more when we pay with credit cards versus physical money. This shouldn’t come as a surprise. When you pay with a credit card, all you’re doing is swiping or tapping your card. You’re not opening your wallet and handing over actual money.
This disconnect from actual money has helped lead to record level household debt in Canada. The average Canadian now owes over $1.68 in household debt for every dollar of disposable income. Although a lot of that debt is fueled by families taking on bigger mortgages to buy their dream home, a lot of it also comes from credit card spending.
Controlling Impulse Purchases
Impulse purchases are a major concern in today’s society. It’s hard to realize how much you’re spending when you’re only tapping your credit card. It’s not until you receive your credit card statement and see the balance that you realize. (And even then, with more of us opting to receive our statements by email instead of snail mail, it can be easy to lose track of how much you’re spending.)
While smartphones have made it easier to spend, there are plenty of budgeting apps to help control your spending. You can download our financial planning & budgeting app currently available only for Ipad devices right here. Some banks also group your credit card spending to make it easier to see exactly how much you’re spending in the categories you’re likely to overspend in, such as restaurants and electronics.
By signing up for a service like Mint or downloading a smartphone app, you’ll be able to see exactly where your money is going. This helps hold your spending accountable, so you don’t find yourself going over budget each month.
With great power comes great responsibility. A cashless society can be a great thing, but don’t lose sight of its pitfalls either.