Joe Barbieri
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Joe Barbieri in Joe the Investor,

The Advantages of Paying With Cash

There is a growing trend towards paying for all goods and services with electronic means based on debit or credit. Has any thought been given to the advantages of paying with cash?

The disadvantages of paying in cash are frequently noted: It can be stolen and never recovered, it is bulky to carry and it takes more time to go to a bank or cash outlet and withdraw bills then to use a card that is already in your wallet. You also cannot buy anything on the internet with cash which is becoming very popular among people. On the banking and government side, you are being discouraged from using cash since carrying large amounts is assumed to be criminal activity. Obtaining cash is becoming harder as some places like airlines or government offices are not accepting cash for certain purchases. The counterfeiting of $100 bills has also restricted the use of large bills, which is convenient if you buy something costing hundreds of dollars.

What about the advantages of paying with cash?

Cash is cheaper than any other means of payment. Yes there are withdrawal fees from your bank, but if you make few withdrawals with larger amounts, you can reduce these fees significantly. You can also go to credit unions that do not charge for withdrawals, but doing this for all of your accounts is more limiting if you need access to funds outside of your home town. Many vendors will give you a discount if you pay in cash or waive the sales taxes, which will result in cheaper prices. One reason why this happens is because electronic means of payment are expensive to the merchant – usually 3% of the transaction amount or higher. The merchant has to pass that cost onto someone, and that someone is the final consumer. If every layer of business is using electronic means to purchase supplies, these merchant charges can add up and all of them will be passed on to the consumer.

There is no risk of identity theft with cash. Your credit card information can also be stolen, which is identical to a mugging. This can be done at short distances through wireless card readers where someone will not have to see or touch your credit cards. Credit card numbers can be changed periodically to mitigate this risk, but there are risks of theft with electronic means as well as cash, and they are harder to identify. There will be fewer unwanted emails, telephone calls or unaddressed admail coming into your mailbox because people will not know what you are buying. By extension, there is also more privacy in using cash. There is a lot of concern about the erosion of privacy, but this is directed correlated with how much technology you use. Even if the entity you are dealing with is reputable, there are viruses, hacking, data being sold, companies being merged and other compromises which can erode your privacy.

You will spend less money if you pay for things with cash. Taking the time to withdraw the money and counting it gives your mind a chance to reconsider impulse purchases, which in some cases will prevent you from making them. Cash also has a way of forcing to see what you are doing directly at the time you are doing it, as opposed to electronic means that feel painless until the bill arrives that you have to pay. The debit card can solve this type of issue, but the reconsideration period only happens when you are carrying and handing over tangible bills.

There are times when using electronic means is better than cash, but the reverse is also true. It may be time to consider looking at both methods carefully and having both of them at your disposal at all times.