I’m no stranger to the impulse buy—an iced tea here, seven Cadbury Creme Eggs there, purchases so negligible they might as well not (and probably shouldn’t) have happened.
Using debit and credit for these miniscule purchases, as I often do, carries with it a kind of perverse guilt. It screams, “I don’t have enough foresight to shoe-horn a 30-second trip to the ATM into my schedule.” And while the transaction completes, you’re forced to endure the condescending glance of the clerk, visibly irked with you for holding up the line. But I wouldn’t be doing this if it weren’t so easy to swipe and spend.
It’s proven that people spend more on average when using plastic in place of cash (estimates range from around 12 to 30 per cent). While a recent survey by the Bank of Canada shows that cash is still preferred in 53.8 per cent of transactions—especially for less expensive buys—its popularity is declining among younger and higher-income demographics as card technology evolves. And with 21 million debit and 74.5 million credit cards in circulation across the country—divided among roughly 34 million purchasers—some of us are hemorrhaging money through two or three cards.
This behaviour may seem irresponsible, but it might not be entirely our fault. Lisa Kramer, an associate professor with U of T’s Rotman School of Management and expert in the field of brain-money relations, or “behavioural finance,” suggests that a hard-wired inability to perceive the connection between card use and actual spending may be partially to blame for our penchant for plastic. “When you think of dollar bills and coins, we’re accustomed to thinking those have monetary value,” she says. “That doesn’t translate very well to a piece of plastic. It’s too abstract. It’s much more painful for our brains to part with cash than to swipe a card or sign a dotted line.”
This genetic shortcoming obviously doesn’t absolve us of all financial responsibility, but when you’re toying with pseudo-imaginary money, it’s easier to view every buy as relatively painless. Often you’re not browbeaten into paying the balance until six weeks later, and even then you can ooze away from full accountability with a minimum payment.
This airy vacuum of financial consequence makes it easier to eat through your income, but there can be significant upsides to using plastic. Purchases on credit and debit are secured by a signature or PIN entry, with automatic protection in the event of fraud; cash is only as protected inasmuch as you can fend off muggers.
Plastic is also almost universally accepted now (Interac alone is at 450,000 Canadian locations), it’s an automatic way to organize your expenditures, and modest incentives like travel insurance, free-ish groceries, and even cash-back on purchases render a swipe here and there deceptively harmless. (It should be noted that, at the rate my rewards are accumulating, I’ll be able to celebrate menopause with a flight to Springfield, Illinois.)
But how can we override our frivolous inclinations? Steve Bang is a professor in Humber College’s financial-planning program and a former BMO senior manager. He says the scenario he sees most often is debtors using cards to finance day-to-day purchases when their cash flow is low. “If you have to use a credit card to buy groceries, there is something wrong with your budgeting,” he says. “If you’re running tight to the line now, living paycheque to paycheque, and holding a $2,000–$5,000 credit-card debt, it’s going to take years and years to pay it down.”
Bang has a few hard and fast rules for keeping out-of-control spending at bay: The first is to only bring along the cash you need to pay for reasonably sized, pre-planned purchases. Of course, it’s not exactly sensible to lug around bursting sacks of bills to a car dealership like some sort of cartoon robber, but for small items like lattes, using cash can be a more salient way to monitor spending.
If you trust yourself enough to use debit, do yourself a favour and have your bank disconnect point-of-purchase access to your savings account from your card. That way, if your chequing balance is running low, you won’t be tempted to dip into your savings to fund a potentially regrettable purchase. Better yet, if it’s feasible, leave your cards at home.
The real crux in the choice between card or cash usage is self-control. If you’re one of the fiscally responsible 64 per cent of Canadians who pay off their credit-card balance every month, you won’t need to resort to such an iron-fisted wallet policy. But if you’re not a mindful spender—hi!—then the inevitability of plastic remains: If you buy now, you will pay later.