Cash Empowers Individuals and Supports Budgeting
Jul 10, 2024
Cashless payment options increase choice and offer unique benefits, but they also dilute our awareness of how much we spend, and—without the balancing power of cash—risk handing ever-greater control of our financial behaviour to third parties.
Writing for New Zealand finance site interest.co.nz, financial coach and mentor Lynda Moore says that a purported benefit of a cashless society would be that ‘all our money would be in a government-controlled bank, making it easier to manage the economic boom and bust times.’ Should the economy need a boost, people would be charged to keep their funds in a bank, encouraging spending. When the economy needed slowing, there would be a charge on transactions to encourage saving.
The thought of a centralised bank having this much control over our spending is still a somewhat scary concept. Particularly if you live in a country where the government can't even run its own books and is hopelessly in debt, let alone manage the money for its citizens.
Moore adds that handing this control to governments would reduce personal freedom around spending and saving.
In this cashless society scenario how are you supposed to save for retirement? If you are encouraged to spend and are penalised for saving this would throw retirement planning out the window. There’s enough of us struggling with retirement planning in our current system.
Moore also observes that, with cash there is both pleasure and pain in payments.
Before cards came along, we would go shopping with a bundle of cash. We would hand over some notes and get some goods in return. We immediately felt the pain of paying and the pleasure of receiving. We could assess straight away if we were happy to suffer that amount of pain for that pleasure.
With any cashless payments, ‘we still get the pleasure—the instant gratification—but the pain is delayed… it only hits when/if you look at your bank account or credit card balance.’ At this point, after the pleasure of the purchase has faded, ‘you might get a double dose of pain.’
Moore notes this is ‘the abstraction of money’, creating a disconnect between earning, budgeting and spending. Fortunately, this is a problem with a simple solution: support cash—enjoy the benefits of resilience, privacy and inclusivity—and cashless options will always have competition. Additionally, individuals will have control over their own money, with the option to separate it from government mandates.
I still have a fondness for cash. From a money psychology perspective, it’s important. It’s tangible, it helps us teach our children about money before introducing them to the electronic medium.