Using cash over cards can help you save, experts say: Here's why I still plan to go largely cash-free in 2021

"It makes complete sense that fewer people are using cash."

I've spent almost no cash in 2020.
Photo by Shawn M. Carter

I almost dropped my peach Snapple and a jumbo jar of cashews on the floor when I heard the cashier call me back to the register. Coronavirus lockdowns were about to start again in Philadelphia, and I had been at my local Rite Aid stocking up on quarantine essentials.

"You forgot your change!" she yelled. I fumbled my hands loose from the plastic bag and pulled a quick 180. It was so long since I last used cash that I forgot this was part of the transaction.

For the better part of 2020, I've spent little to no paper money any time I made a purchase. When I shop at the Target on City Ave, I use debit. The Starbucks on Walnut Street? An app.

Experts say using cash over plastic could actually help you save, but during the last 12 months, I've done almost exactly the opposite. And the impact on my bottom line couldn't be clearer. Not only have I been able to clearly track where my money is going, I've been able to take steps to cut back on unnecessary purchases and put extra money toward my savings goal that I otherwise may have spent.

Here's why I plan to stay largely cash-free in 2021, and why it's been working so far.

I don't need cash as much during the pandemic

I never intentionally set out to scale down my cash use. With less of a need to spend paper during the pandemic, it's just been supereasy to overlook. Even before the crisis, though, I would rarely have change for things like valet tips and other miscellaneous expenses. As a millennial, reaching for my debit card or phone to pay is practically second nature.

A growing number of Americans seem to feel the same way. Only 16% of consumers say they normally carry cash and 58% plan to stop using it completely, according to recent figures from Travis Credit Union, which polled more than 2,000 adults in the United States in August.

That's partly because there's a "convenience factor" in using plastic "that cash could never provide," says Miro Pavletic, Credit Sesame's head of global banking. "You can't buy anything online with physical cash, and you can't pay for your Uber, Netflix, or Spotify with cash." That's especially true when you're making purchases from your couch during a lockdown.

I love the perks I get with plastic

Online purchases, more often than not, require a debit or credit card. If you use credit, specifically, you could even get some extra perks like discounts on gas, elite status at your favorite hotel chain, and air travel miles for when it's safe to vacation again.

What's more, paying off your balance on time and in full each month will help establish or improve your credit score and make it easier to land a deal on a home loan or new car.

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Whether you're using credit or debit, the whole ordeal could be more secure. Carrying around lots of paper bills can be risky since there's no institutional safeguard in place if you lose it. If your card gets left somewhere or stolen, however, you can report it to your bank and get a replacement. Plus, if you become a victim of fraud or theft, there are protections in place to reimburse you.

Keep that in mind especially when making a major buy, says Greg McBride, the chief financial analyst at Bankrate. Proving past purchases is much easier with a digital record.

"There is no universal advantage to using cash," he told CNBC Make It last year. "Cash offers no protection from loss, theft, or fraud that you are afforded with credit and debit cards."

It's easy to track, and limit, my spending

Convenience and safety aside, the biggest benefit of going cashless for me is being able to take a crystal-clear look in the financial mirror. And to track my spending through online banking.

When I log into my account each month to pay bills and assess my finances, there's no question of how much I spent, where, and on what. The picture isn't always pretty, but it is always accurate. That's certainly a plus if you're looking to get in the details with your budget.

You can't buy anything online with physical cash, and you can't pay for your Uber, Netflix, or Spotify with cash.
Miro Pavletic
Credit Sesame

Unless you're diligent about saving physical receipts, spending with plastic or via bank account also allows you to use tracking apps that can help you allocate and save money better.

I would have never guessed that I spent almost $400 in one month on Uber Eats if hadn't seen the numbers for myself, all on the same screen. More importantly, I wouldn't have taken action to scale back so swiftly by cooking more meals at home (and eating more cashews).

But there are two sides to the coin …

Going on an all-cash diet helped 20-something-year-old Kristy Epperson avoid overspending and eliminate $20,000 in student loan and car loan debt in just one year. While that may seem like an extreme example, study after study shows using cash can help you be more disciplined with your budget. 

Even in the Travis Credit Union survey, 62% of poll-takers say they're less likely to overspend with cash. 

A recent MIT review found consumers are willing to pay a whopping 83% more when paying with a card over cash. That's because there's a psychological factor at play with bills, causing people to feel more "pain" when parting with paper money as opposed to using a card.

By making purchases less automatic, shoppers may make smarter choices about their budget. "If you have $100 to play with, that's all you can spend, and my guess is that you'll spend very carefully," Trae Bodge, a shopping expert at TrueTrae.com, told Grow in September.

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You'll avoid certain fees with cash, too, such as the 1% to 3% charge many vendors tack on in order to offset processing costs. So, it can be a lot harder to fall into debt using paper.

Paying with plastic isn't always completely safe, either, and bank accounts can be hacked.

"A lot of banks are getting better at cyberprotection and dispute resolution, but if somebody gets your debit card or access to your checking account, they can do some real damage," Michael H. Baker, a CFP and founding member of Vertex Capital Advisors, previously told Grow. "You have to fight to get it back, and in the meantime, the money is still gone."

… and for some people, cash definitely beats cards

Using plastic works for me, despite the potential risks. The same can't be said for everyone.

While I mostly try to stick with debit, I use my credit card for certain purchases, too. But I recognize that it can be easy to rack up credit card debt. The average U.S. household's credit card balance is nearly $8,000, WalletHub data shows.

And not everyone has a card, period. About 6.5% of U.S. households, or 14.1 million adults and 6.4 million children, are unbanked, according to the Federal Deposit Insurance Corporation, meaning they live in a home that has no accounts with a formal financial body. While there has been a push among some vendors to go fully cashless, eliminating paper bills would exclude millions of Americans.

I plan to spend even less cash in 2021

Cash use in the United States is on the decline. Even fewer people are choosing paper over plastic than before the pandemic. When Americans do have bills on them, it's an average of just $46, according to the Travis Credit Union poll, and younger adults are least likely to carry cash. 

ATM use was even down 32%, according to a June Axios report citing Visa data, and 63% of consumers say they're using less physical money.

If you have $100 to play with, that's all you can spend, and my guess is that you'll spend very carefully.
Trae Bodge

"It makes complete sense that fewer people are using cash," Pavletic says. Although advancements in technology have "been the catalyst for the shift away from physical cash, the pandemic accelerated that movement."

Whatever your stance is on cash versus card, experts agree it's useful to track your spending, so that you know where your money is going. That can be an eye-opening practice.

If you like cash, take a picture of your receipts or save them in a planner after you make a purchase. If you're prone to plastic, on the other hand, try using a mobile app like Mint or Personal Capital. What you discover may surprise you, and you may decide to make changes.

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