Here are some proponents of the cash-only lifestyle:
• In Total Money Makeover, Dave Ramsey advocates a cash-only lifestyle (but allows the use of debit cards) and instructs his readers to eliminate all use of credit cards. Mr. Ramsey cites a Dunn and Bradstreet study that "showed that credit-card users spend 12 to 18 % more when using credit instead of cash." Mr. Ramsey further cautions that, "When you play with snakes, you will get bit."
• As an experiment, the couple in this Good Morning America video clip agreed to live one month without using credit cards (or even a debit card) and found that a cash-only lifestyle saved them 24%. The couple decided to continue to use cash only (with the exception at the gas pump).
• Financial columnist MP Dunleavy concludes that people spend more using credit cards because credit cards make spending seem painless. (The same reason why casinos use colorful chips versus cash in all of their table games.) Ms. Dunleavy points out that:
"[R]elying on credit can create a carelessness about your personal finances, a blind spot the size of a barn, that paves the way for overspending and ultimately a lifestyle anchored by debt.” (Italics mine.)So there appears to be plenty of studies and anecdotal evidence that show that credit card use causes people to spend more than they otherwise would. My own credit card balance clearly supports this as well.
But isn’t it the carelessness and apathy that causes people to over-spend, not the credit card itself? Isn’t this analogous to an obese person complaining about how fast-food restaurants are making him/her fat? Where does individual responsibility come into play here?
For the record, I take full responsibility for the fact that I’m currently $13,000 in credit card debt. I’m in this hole because, until very recently, I didn’t care that I was going into debt.
I used to feel hopeless that I could never dig myself out of my student loan debts so I didn’t care about going deeper into debt through credit cards. I bought expensive clothes, shoes, jewelry (collectively known as junk) and took expensive vacations that I clearly couldn’t afford. Instant gratification took priority over debt avoidance.
Is it really the credit card company’s fault that I, as an adult, didn’t exercise restraint from spending money I didn’t have?
The wife in the GMA video clip said, “I think I’ll definitely pay attention now, ‘Do I have enough cash to go check out?’” Later, the wife said, “I don’t have enough money in my purse to go buy this dress or this new shirt that I want, so you don’t even step foot into the store because you don’t have the money.” This made me wonder whether this couple previously lived on a budget? (Doesn’t seem like it.)
Without a budget and without a list of items to purchase, I can see how someone can carelessly make spur-of-the-moment purchases using credit cards. But I suspect that if someone lives on a budget with a strict commitment to pay off the credit card balance every month, any savings from a cash-only lifestyle will evaporate.
Anecdotally, I’ve now set myself a $500/month budget on my American Express for groceries, toiletries and any other irregular purchases. I carefully track my spending on a weekly basis and I’ve found that I normally come under budget every month. For example, I only spent $369.29 in August for groceries, entertainment and other miscellaneous spending.
I doubt I would do much better living on a cash-only basis. Thus, the inconvenience of the cash-only lifestyle would seriously outweigh any purported savings that I would see living a cash-only lifestyle. I've decided that I will continue to live on a budget and use my credit card judiciously.
I’d like to hear about other people’s opinions and experiences.