Debit downer: Cash the cheaper payment option

As Americans celebrate the 45th anniversary of easy access to cash via the automatic teller machine, one big question comes to mind. 

Does anyone use paper money any more?

People are using plastic more frequently for even small purchases, according to a creditcard.com survey

They should, at least if they want to save a little money, according to several studies. Retailers have long found people spend more when purchasing via plastic versus paying with cash.

“It’s also easier to spend on debit than it is when you’re spending cash because it doesn’t feel the same as pulling cash out of your wallet,” said Gerri Detweiler, the director of consumer education for Credit.com.

America was introduced 45 years ago to the automatic teller machine — a 24-hour, 7-day-a-week cash pumping device — on Sept. 2, 1969. But the presence of quick cash has quickly turned into a demand for easier, faster and more.

From vending machines to farmers’ markets to outlets bringing credit card scanners through store aisles, many retailers are making every effort to make purchases easier for consumers.

“If you aren’t making it easy for someone to use plastic than you may be missing out on sales and you may be missing out on incremental sales,” Detweiler said.

Now some outlets are promoting contactless credit cards.

“MasterCard advisors saw like a $600 a month increase in spend with consumers who were using contactless technology,” Detweiler said. “The easier you make it for customers to spend, the more it means to the retailers’ overall sales.”

As for whether consumers use cash, some still do. The number of cash payments increased from 2008 through 2010, according to a study done by the Federal Reserve Bank of Boston. The study found that as the number of total transactions went up after the recession, so did the number of cash payments.

That could have been in part because credit card companies cut back on the number of cards issued and the available credit as the recession hit, so more people had to use cash or checks.

Though the amount of available credit has not reached the 2006-07 levels, the numbers are improving, Detweiler said.

The result could be more people pulling out the plastic, she said.

“When you have a bigger credit line even though it’s not the same as money in the bank, it can make consumers feel more confident about their ability to spend and their ability to repay a debt even though it’s still debt,” she said.

But Detweiler said she thinks people use cash for different reasons than they might have 50 years ago.

“They still carry cash, but they tend to use cash for smaller purchases,” she said. “When someone has cash in their wallet, it’s usually to buy something that’s $10-$20 or less. For larger purchases, they typically pull out some kind of plastic.”

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