My month-long experiment of surviving on cash only is at an end. One question I had hoped to answer was whether switching to purely cash transactions would cause me to spend less. To find out, I took three months of transaction data from last summer from Mint.com. After removing spending anomalies like an unusually large student loan payment and an airplane ticket, I averaged the expenses for this time period in a number of categories like “entertainment” and “groceries.” I compared the three-month averages with my one month of cash spending during Sorry, Cash Only.
I suspected that the numbers would reveal that I spent less during my cash month. Existing research shows that convenience, reduction of barriers to spending, and even perception of credit all contribute to higher spending with credit cards. However, I wasn’t prepared for how much less I spent. In twelve of my seventeen expense categories, I spent less– and in nine of those categories I spent more than 20 percent less. Overall, I spent 17 percent less in total during Sorry, Cash Only than the average of my summer spending. While credit cards offer convenience, they are bad tools for budgeting. I’ll keep using cash for most of my purchases because I found it much easier to stick to my budget when I plan expenses, take out a specific amount of cash for the week, and draw from it for purchases – as all Americans did in the days before plastic.
One reason I spent less is that I couldn’t buy things online. While this may seem easy to dismiss as a “first world problem,” much of my online commerce is not shoe shopping – it’s reserving tickets to professional or cultural events. These activities provide personal enjoyment but can also be life-changing. I found my current job through a networking event that required an online reservation, a major event and tremendous shift in my financial situation that could not have occurred without both a credit card and an internet connection.
Often times, popular services are mistaken for being ubiquitous – “everyone” has a smartphone, “everyone” has a bank account, “everyone” has a credit card. But everyone doesn’t. Millions of Americans (and billions of individuals worldwide) are excluded from formal financial services and operate in a parallel system. This project showed me that being “banked” is not only useful and convenient; it also provides access – to professional growth, to investments, to security, to convenience, to information, to capital, and to a higher quality of life. Most importantly, being unbanked means being socially excluded. For example, in Washington State, you have to make your first payment on the Obamacare health exchange by credit card, debit card or electronic funds transfer from a bank account. In New York, new select bus service machines and bike-sharing programs do not accept cash. If our institutions (schools, retailers, healthcare providers) create systems based on the assumed access to technology of the majority, then the minority cannot be full members of society. These examples are especially problematic because improved public transportation and low-cost healthcare are especially important to improving the lives of low-income individuals, who are more likely to be unbanked.
So why is there such a disconnect between the banking haves and have nots? Because the financial trajectories of the banked and the unbanked generally do not intersect. Prior to Sorry, Cash Only I had never entered a check-cashing store, never thought about alternative methods to bill paying, nor worried much about day-to-day financial management. And most policy makers and thought leaders in the financial services sector do not either. I am reminded of a recent article that explains the paradox of poor mass transit policies in New York with an interesting theory – in the city with one of the most widely used transit systems in the country, local and state politicians create policies that favor drivers because “politicians don’t ride the bus, and likely know hardly anyone who does regularly.” Metaphorically, people with access to financial services and technology ride an ever more efficient express train while the unbanked are left behind on the neglected local. If the unbanked remain invisible, we as a society remain unable to imagine the challenges they face, and powerless to help them meet their financial goals. We need to start bringing both groups to the same table to make better systems that truly serve everyone’s needs.