By Sean Cooper
When was the last time you used cash to make a purchase? If you’re anything like me, you’ll struggle to remember.
Canadian media tends to paint the cashless trend as having a woefully negative impact on our personal finances, particularly with respect to our spending restraint (or lack thereof) when we use credit instead of cash. But like it or not, Canada is going cashless.
Five years ago, 71% of Canadians said that they’re comfortable never handling cash again. More recent stats indicate that this attitude is a growing trend: Canadians made over 11.5 billion cashless transactions in 2014. Now some experts predict that by 2030 we’ll only use cash for 10% of our transactions.
Cashless is faster, more convenient and more secure. So instead of complaining about a technological inevitability, let’s prepare for and make the most of it.
How Cashless Benefits the Consumer
- Convenience: Credit cards are a time saver: fewer trips to the ABM, less time spent looking for all your loose change (unless you enjoy that) and faster checkout lines when shopping.
- Rewards: Most credit cards and debit cards offer rewards (cash back, reward points, travel rewards, etc.). On the other hand, the Bank of Canada won’t give you extra bills to incentivize the use of its notes.
- Building Your Credit Score: As I mentioned in one of my recent articles, credit cards are a good way to build a credit score when used responsibly. If you always pay in cash, you won’t establish and grow a credit score and you’ll likely have difficulty obtaining a mortgage or car loan later in life.
- Security: Most credit cards offer zero liability protection. If your credit card information is stolen through no fault of your own, you likely won’t be held liable and your stolen funds will be reimbursed.
- Purchase Protection: Many credit cards offer purchase assurance and extended warrantees on goods purchased. You can also do a charge back if you pay for something and the goods or services aren’t delivered.
Going cashless clearly has a lot of advantages, but consumers need to adjust their mindsets in order to avoid its biggest pitfall: the dreaded overspend.
Bring the Pain Back to Spending
Have you ever wondered if you spend more when you use your credit card versus cash? You probably do. A Dun & Bradstreet study found that people spend 12-18% more when they put their purchases on plastic. And there’s a psychological impetus behind it.
When you see the price of something, it normally stimulates a part of your brain known as the insula. But when you use your credit card, it dulls the pain that the insula absorbs (since no physical money is exchanged). I spoke with Stephen Weyman, founder and CEO of creditcardGenius.ca and HowToSaveMoney.ca, about how we can bring back some of the ‘productive pain’ of transacting with cash into our automated, cash-free lives.
“As we move to an increasingly cashless society, the risk of overspending is certain to increase at the same time. The primary reason being that the sense of loss or pain is greatly diminished when paying electronically. After all, it’s just a number on a screen that we often don’t even look at,” says Weyman.
Here’s a breakdown of some of Stephen’s tips to counteract this tendency to overspend with credit.
- Add a manual component to your spending, like writing each expense down in a notebook or using your smartphone.
- Use a credit card with a low credit limit for most of your spending to make sure large impulse purchases will get denied.
- Use spending and budgeting apps like Mint, You Need a Budget, or Spending Tracker to track each expense and compare to your budget in real time.
In addition to Stephen’s advice, I would add a few more steps to your spending routine: before making major purchases, pause before you buy. If there’s any doubt in your mind, take a cooling off period of 24 hours. You don’t have to decide on whether or not to go through with the purchase then and there (unless the sale is ending that day). And as for the most important tip of all…
…Get a Little Obsessed with Your Bank Statement
The average Canadian checks their smartphone about 100 times a day. Just imagine the financial shape we’d be in if we diverted a fraction of our phone and social media mania toward regularly checking our bank statements and reviewing our charges.
So try to check your credit card statement weekly (at a minimum). Simple bank statement vigilance not only helps us keep our own spending in check, but it also makes it easier to catch other unwarranted charges. A money coaching client of mine unknowingly paid for the rental of his old house’s water heater for two years after he moved out. This unnecessary waste could easily have been prevented if he’d logged out of Facebook and logged into his online banking once a week.
Are We Really Going Completely Cashless?
Will we come to a point in which there’s no need for paper currency whatsoever? Not in the foreseeable future, according to Stephen.
“My belief is that we will never be a completely cashless society because the underlying systems that support cashless payments are fragile. To me that means cash will always have a place as a backup form of payment when nothing else works,” said Stephen.
Although eventually every vendor, from major businesses to small mom-and-pop shops, will do most of its business with credit, it’s a good idea for consumers to hold onto a little bit of cash as a backup in case of a network outage. There was a major outage with Interac earlier this year, which left many Canadians scrambling to find alternate ways to pay their rent and bills.
So even though you’ll soon be making most of your purchases on credit (if you aren’t already), you might want to keep a few Loonies in your pocket. Just in case.