Friday, June 8, 2012

Is Cash still King?

Cash is King. Or so I have been told over the years. But I have also found that cash is easily lost, burned, stolen, and can also be easily spent on impulse purchases. So, what if we completely dropped using traditional financial institutions and started paying for everything in cash? That means foregoing all checking accounts, debit cards, and credit.

The bank checking account that is free today may cost a consumer $5 to $25 per month next year if they lack direct deposit of their payroll or do not maintain a minimum savings balance. So the cash only question is a reasonable experiment; what is the process of not using a checking account or credit and going cash only for all transactions?

Sure there are some monetary advantages to using cash; you often get a discount on gasoline purchases. Some small markets and liquor stores will charge a dollar or more for using a debit card at their establishment. Using cash, one can forgo these fees. Technically, everyone accepts cash without question.

Where do we keep our cash? In a financial institution? The consumer might use only a savings account to maintain their cash and access what they need from an ATM.  They may keep a personal safe in their home. Of course, keeping cash in your home may open you up as a target for robbery.

To go “cash only,” a person will need to plan ahead and maintain a solid budget. They have to know how much they will need from day to day to cover the costs of groceries, gasoline, and whatever other sundry items they will need to purchase. I know people who currently don’t have a checking account who cash their paychecks and carry that cash with them all month long. Very few of them have any savings to speak of. Thus, the budget is critical to managing our spending cash.

There are a lot of things we won’t be able to do without a debit card or a credit card. How about renting a car? No debit or credit card, no rental car! You cannot make an online purchase with cash. You cannot reserve a room or an airline reservation over the phone or internet with cash.

Paying bills by cash creates a dilemma of time. A person would have to have all their vendors to whom they pay their bills local to their home or employment. You don’t want to mail cash! You would want to go to the bank that holds your home loan and make your payment there. Then you would have to go to a location to pay your power and gas bill, your phone bill, and your cable TV bill, etc. Do we have the personal time to run around and pay all of our bills this way? Gasoline is not getting any cheaper so running around like this is going to cost us.

I could not pay all my bills with cash and believe anyone with a few outstanding accounts would be challenged to go “cash only.”  In the situation that I have described thus far, a debit card with online banking makes the most sense.

Debit cards draw cash from your checking and, thru the merchant banking system, when we make a purchase the funds are transferred from our checking account to the merchant’s account. If a debit card is lost, it is easily replaced by the financial institution. If the consumer reports their loss immediately, they will suffer no monetary losses. If someone steals your debit card and they process transactions on it, the consumer is reimbursed by their bank for the fraudulent transactions. Not so for cash.

I don’t want to run around saying the “King is Dead!” but, it appears that there are a number of things we can do with cash in our pockets, but it seems there is more we cannot do without a debit card and only cash in our pockets. So, is going “cash only” a viable option in today’s world? Probably not.

And don’t forget our financial education workshops that we are offering here at our main office in the coming month of June:

Free Financial Education Class: Real World Budgeting for Teens (seems to be a lot of demand for this!)
Wednesday, June 13, 2012 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

 Free Financial Education Class: Auto Financing 101
Wednesday, June 20, 2012 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

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