Yahoo Finance I paid for everything using cash for 3 months: Here's the problems and if I saved money
Cash use is expected to be near-non existent in Australia by 2025.
Cards are king. Well, they soon will be, with a new survey showing cash use is plummeting.
Analysis from the Reserve Bank has revealed use of cash has fallen by more than half in just the past three years, to just 13 per cent of transactions. And it’s an accelerating trend too; more than two-in-three transactions were completed with cash in 2007.
Predictions of when we will go completely cashless are coming thick and fast. Already, the Global Payments Report has forecast that, by 2025, just 2 per cent of all payments in Australia will be made with cash. And this latest report shows declining use across every demographic but, surprisingly, more pronounced ones from traditional cash transactors like the elderly, people in regional areas, and lower-income earners. It also shows a growing willingness to flash the plastic for amounts under $10.
Whether it’s the germ factor of the pandemic or the fast march to electronic everything, it’s a self-fulfilling circle: lower usage is feeding into lower numbers of ATMs and cash-access points. Sometimes, it’s simply hard to get cash.
But the problem is a cashless society will have significant implications on our finances. In fact, the problem is twofold.
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Everything you need to know about Australia's march toward cashless society
Problem 1: Eroding your bottom line
You might not have considered there could be a bigger hit to your (empty) hip pocket than fees of up to 1 per cent on potentially every transaction.
With the end of physical money seemingly nigh, I conducted a three-month spending experiment earlier this year: I went purely to cash. The idea was to see if even my stingy self pays more, more often, when I instead use the convenience of cards.
I went hard-core, cancelling all my direct debits - it was a good opportunity for a total expenses audit. You would be surprised how many bills you can pay in cash at the post office. Just quietly, it acts as a branch for many banks as well. And where I wanted to buy online, I went and purchased (with cash) prepaid Visa gift cards or vouchers first.
So, what happened in my cash experiment? I slashed my spend by 35 per cent.
It may have been the inconvenience or the cause-for-payment-pause at every turn. It’s also possible this dramatic result for even my disciplined self was due to a psychological phenomenon called coupling/decoupling. Credit cards de-link your purchase from the payment pain - you kick the cost can down the road because it lands a month or more later.
Now that my experiment is over, I’ve kept using cash for my consumables and reactivated my digital life for all my running expenses. Regular readers will know I strategically structure my finances to mobilise every bit of money I have to slash my (new) mortgage, and one strategy is to set my salary against it while living off an interest-free credit card each month.
But by still devoting actual dollars to discretionary purchases, I now know I spend less of them. Give it a try and let me know how you go.
Problem 2: Disadvantaging your children
There are two vital lessons you need to pass on to your kids if they are to survive and manage money in the real world: 1. money runs out and 2. (and it’s closely related) you need to very carefully decide what you do with it.
It’s incredibly difficult to show kids that something that doesn’t exist anymore, can run out. Those salient coins in a jar, or cash in ziplock bags, drives home the money lesson. In the past, the pay envelope with cash came to the dinner table, and putting money on the ‘menu’ remains a great strategy, even if it’s only in the form of a conversation over dinner.
Anyway, the cash from that old-school envelope was often doled out at dinner for what was necessary, with decisions made about how to carefully allocate the amount. It is, and will get even more, challenging for parents to teach their children financial literacy.
Also by Nicole Pedersen-McKinnon:
The other aspect to the digitisation of our dollars is that fin tech companies are targeting our progeny hard. For these, and even more reasons, a segment of the population will remain rusted-on cash advocates. However, it looks like we will have no choice - and soon - but to fully embrace the electronic.
What you need to know about the use of cash in Australia
Fewer people are using cash due to the convenience of paying with phones, watches and cards
There isn’t a shortage of cash-withdrawal points, with around 20,000 ATMs plus supermarkets to collect from
There’s about $100 billion in cash floating around Australia - or 2 billion notes
The government has not indicated cash will be taken out of circulation
The Big Four banks have all ruled out going cashless
Average cash withdrawal has increased from $180 to $290.
RBA: ATM withdrawals dropped from 77.9 million in December 2008 to 29.7 million in June 2023.
Finder survey: 13 per cent of Aussies never use cash, 44 per cent use it once a week, and 42 per cent once a month or less.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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