Save Money by Using Cash!

 If you want to save money, there are many methods to take.

- create a budget and stick to it.

- stop drinking Starbucks everyday 🤣

- automatically have 10% of your paycheck directly deposited into savings.

- ** Insert another random cliche' "savings hack". **

The fact is most people overlook one major method that would be easy, and noticeably reduce spending without even trying. When you spend, whether it be on everyday items, groceries, or shopping, you should use cash. Extensive studies have shown spending patterns: Paying with a card vs paying with cash - you generally spend more paying with a card. 

In 2018 a U.S Consumer Payment Study was done by TSYS to analyze the spending patterns between debit cards, credit cards, and cash. The study showed consumers will spend 83% more on a credit card than with cash. 

There have been studies reported about how cash payments activate pain receptors in the brain, and there is no such activity using plastic. This claim is especially popular with Dave Ramsey. 

A study was done by MIT, "Neural mechanisms of credit card spending". Analysis of the results have shown in cash only trials, rewards signals (feeling of pleasure in spending) was much weaker when using cash vs a credit card.

The MIT study did acknowledge the idea of pain receptors, but found a slightly different result: The use of credit cards heighten the attention and memory toward positive elements of a card, and negative elements of product stimuli are hindered. Their analysis on multiple parts of the brain showed credit cards encouraged more spending. This is encouraged by the fact you do not see the cash leaving your hand, and knowledge that the official payment of a purchase is not immediate, but a month down the line. This differs from most basic claims that cash purchases decrease spending, whereas this study simply shows a credit card has an increase.

This is encouraged further with credit cards reward points. Typically you will get back 1-2% in credit card rewards. But spending far more without realizing it actually has the counter effect of points. What many call the credit card game, is a losing game for most individuals.

        "But These are things I buy anyway, so let me use a credit card to get points."

This may be true for minimal situations, but in reality, you really do spend more than the credit cards rewards points.

If you do not believe this, let it be known McDonalds did the study. After thirty minutes of searching, I could not find the official study online. I did find online however the McDonald's exec Shapiro, at the time, suggested the average per ticket sale would rise from $4 to over $7 from getting rid of the cash only policy and finally taking cards. McDonald's, a multi billion dollar company took the time and resources to learn this, and took advantage of their new found knowledge that credit and debit cards would increase sales. 

This is one of the reasons the banks promote credit cards so heavily. Most people assume the interest is where the funds come from. Although this is true, there is also revenue coming from merchant fees, also known as interchange income. The table below from Valuepenguin shows a 2019 breakdown of banks breakdown of income from credit cards. As you can see, most credit card revenue comes from interest, but a significant amount still comes from merchant fees. This is why banks still promote credit cards even when you pay off your balance every month.

I propose a challenge to everyone reading this. 

1. Go to the bank and take out cash for your typical in-store spending for the remainder of October.

2. USE ONLY CASH for the month. Do not think about comparisons. 

3. Analysis how much was spent on all your purchases that would have otherwise been purchased with a card.

- couple exceptions: gas for your car, public transportation fare; expenses that will not change regardless of cash vs card. Groceries WILL change with cash, as will restaurants and tipping.

At the end of the month, do you think you will have spent more, or less? Keep track of everything you spend with cash. Compare it with previous months bank and credit card statements. You will be shocked.

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