Paying by cash to help save money?

Posted in 'Personal Finance' by Elizabeth Harrison

11 July 2012

As the average UK citizen continues to feel the effect of the credit crunch it comes as no surprise that increasing numbers of people are turning to cash in an effort to better manage their spending.

Figures just released show that at the end of 2011 the usage of cash machines had increased and there are numerous reasons why some people prefer cash over plastic, paper over digital.

The reality of handing over cold, hard cash can make you more aware of the true cost of goods. Compare this with the detached, limitless world of plastic cards and digital transactions where it can become easy to lose track of spending. With cash you are less likely to be tempted beyond your means . After all, you can’t spend what you don’t have.

And control is important not only for budgeting, as consumers are becoming increasingly aware of the ways in which our spending habits are monitored and recorded. In the battle against Big Brother many prefer the anonymity of a cash transaction; not to mention older people who were brought up on the idea that you only buy what you can afford and who are perhaps wary of credit and out of touch with the digital world, and small businesses who can’t afford the merchant fees for processing payments or the technology required to accept card payments.

But is it so easy to rely solely on cash or are we being pushed towards a world of electronic payments?

Try paying a utility bill using anything other than a direct debit and you will most likely be hit with a hefty handling fee.

Booking a flight? The best deals can often be found online but the majority of online payments require credit or debit cards.

Need to rent a car but don’t have a credit card? Good luck!

Choose to take the train instead and you may find that staffing cuts have led to more unmanned stations. You’ll have no choice but to use a ticket machine which may not even accept cash. If it does then you’d better have the right change because they won’t just accept any old coins you know... suddenly a credit card seems like the road to a simple life.

Consumers are increasingly finding penalties for cash payments and even coming across blatant ‘cash not welcome’ policies.

Many US airlines have introduced cashless cabins under the guise of simplifying life for the customer. But is limiting payment options really in the interest of the consumer?

It is certainly easy to see why businesses may prefer a cash-free environment. Transactions are quick and easy without the hassle of change. The bank charges levied on businesses when banking cash are absolutely horrendous – it’s no wonder supermarkets are keen to give you a cash advance on your card at the checkout.

And with the digitalisation there’s a chance to implement cost-cutting measures. Why pay someone to deal manually with cash and cheque payments when automated systems can be put in place to deal with payments electronically?

It certainly appears that big business has an incentive to promote electronic payments and when those with the power are limiting our payment options do we really have a choice?

An entirely cash-free economy may seem unlikely but it’s actually not so far-fetched. In Sweden , bills and coins represent a tiny 3% of the country’s economy and cash-free establishments are not uncommon. Could the same happen here in the UK?

Relying on cash as your main payment method may work well short-term as a budgeting strategy but how realistic is a card-free existence in the modern world? It is undeniable that paying by credit card has its advantages. Don’t have cash to hand in an emergency? No problem, put it on the card. Problem with a purchase? Chances are, if the amount paid is over £100, that you have additional protection under Section 75 of the Consumer Credit Act 1974 so your card provider will be able to provide a refund.

Card lost or stolen? Cancel it and your money’s safe. A credit card offers a simple and convenient payment method and with fewer organisations requiring a minimum payment amount for card transactions and a move towards removing credit and debit card surcharges, it only adds to its appeal.

But whether the credit card can take the place completely of our humble notes and coins is another matter. The demise of cheques has been on the cards (no pun intended) for a number of years now due to a decline in usage.

Despite this, plans to phase out cheques were scrapped last year, following pressure from charities and others.

While there is a section of society for whom cash is preferable, there will be a place for the cash payment.

In any case, you’re going to need a back-up plan for when technical issues prevent the use of credit cards as we saw with the recent major systems issues at RBS.

It's probably wise to keep a bit of cash handy just in case...

Elizabeth is a Credit Analyst at checkmyfile. She has a degree from the University of Manchester in French and German.