Suzanne Garland and I have just completed a month in which we set out to not use our credit cards. We mostly paid cash. As a result, we spent more carefully and, as far as I can tell, spent less than we might have otherwise.
Twice in the last two weeks, though, I found myself paying by credit card, even though I was carrying enough cash, just out of fatigue. It occurred to me to ask how often fatigue plays a role in people’s spending decisions, including my own. Spending money is such a spiritually resonant event that ideally, it ought to always be done from a position of strength. How much do we spend unwisely just because we are too tired to make the right decisions at the moment? Perhaps there should be a rule not to make any spending decisions from a position of fatigue. Fatigue, perhaps, is a condition that calls for rest rather than shopping.
Much has been made recently of the cardholder fees associated with credit cards, and the risk of data loss in credit card transactions is also a consideration, but credit cards have a significant cost even when everything goes perfectly. The merchant pays its bank a transaction fee of about 35¢ plus about 2.5 percent of the transaction total. That means, if you buy a $70 concert ticket with a credit card, the bank gets about $2 and the ticket seller gets only about $68. The bank fees then are divided up among about five banks and clearinghouses in five different states. It is the same story with debit cards.
By contrast, when you pay with cash, the cost of handling the cash transaction consists mostly of the hourly wages paid to the cashier who is standing right in front of you. Money is more local when you pay with cash. The cash you spend in a store helps keep the store running, instead of helping to keep the banks running.
Not satisfied with running up the fees on credit cards, banks are now boosting fees on debit cards. One of the most troubling tricks banks have is a $35 overdraft charge for each debit card transaction that the bank processes after the checking account has run out of money. You might think banks could refuse those charges, but many banks do not offer cardholders that option. To make this trickier, often the only reason the account is overdrawn in the first place is that the bank has assessed a surprise service charge on the account. Thus, while debit cards have their advantages, it is risky to use them for large numbers of routine transactions. Make eight debit card purchases in a day, and if the bank has already drained the checking account, you could be looking at $280 in overdraft charges.
All things considered, it is better not to rely so much on credit or debit cards. I believe I will go back to using a credit card to buy gasoline, but I do not want to be using my card every day.
Suzanne last week applied for and obtained a debit card from her bank. She has started to use it for online transactions, and she thinks it will help her manage her cash at times when it is hard to get to the bank. But for the most part, she says, she will be paying for purchases in cash. And that is what I’ll be doing too. Paying for routine purchases in cash can be more work, but you end up getting more for your money.