What’s In Your Wallet?

When out and about on the Outer Banks, or when traveling elsewhere, what do you lack in your wallet or purse? Of course, the card pockets are filled with proper ID, health insurance cards, car insurance information, perhaps a AAA card, bank debit card and probably a credit card or three, but what about cash? If you were born before 2000, your parents probably said to always have cash (or travelers checks) on you, but should you head to an ATM before getting on the road? Let’s look at how cash versus card usage works and consider whether bringing a bit of “folding money” is a good idea.

Thinking back to when I was a child looking forward to our summer beach trip, we’d count and roll the change collected in a big glass jar from clothes pockets, car clean outs, and grandparents’ purses. We’d proudly take our stash to the bank and get what we called our “vacation money.” It was the discretionary spending my sister and I had when perusing the few beach shops that were around at that time. This method my parents used created a budgeting lesson we also enjoyed because it was “our money” to spend without their permission. Want the 10-dollar ice cream sundae? I’d open my unicorn emblazoned wallet and see if the treat was worth maybe not getting that souvenir shirt at the pier.

Why is it that cash works better for keeping to a budget? An MIT survey from February of 2021 shows through observing brain activity while people made purchases with their own money for items they chose, they tended to spend more and have higher striatum (the classical reward center of the brain) activity than when using cash. This study showed that credit card usage tended to “press the gas” on spending more so than cash, which did not activate the striatum as much and showed propensity towards a lower purchase cost. Of course, my parents never read an MIT study, but it seems they understood the principle.

Society, however, has moved away from cash purchases. According to the Federal Reserve, non-cash transactions have increased 9.5 percent between 2018 and 2021, which was twice the rate of the previous three years and more than thrice the rate if you look at 2000-2018. The 2021 Diary of Consumer Payment Choice (Diary) showed people use credit and debit cards for most transactions, averaging 57 percent of total payments in 2021. This is an increase from 55 percent the prior year and 54 percent in 2019. Thus, credit and other digital transfer options left about 20% of transactions to be made in cash. This percentage could drop to 10% by 2025 according to Insider Intelligence. Is it the increase in online purchases? No, studies show people prefer to use their cards instead of cash. According to the Diary, “In 2021, [only] one in five consumers stated a preference to pay with cash for in-person payments. Since 2016 the share of consumers who state a cash preference has dropped from 27 percent to 19 percent.”

So, despite the budgetary risks, card usage continues to increase, and therefore becomes the majority method of payment at local restaurants and stores. With its ease of use, relative safety from theft, and implication of higher average spending, what’s the downside of this increase in non-cash spending? Three issues present themselves: access, outages, and fees.

First, to address the access issue, let’s think of some examples where people wanting to make transactions between each other are unable to use a card or digital currency. Whilst a check may be another physical example of how funds can be transferred, the average person is generally unwilling to take a check from a stranger for a purchase of goods or services. So when someone wants to buy from an individual’s yard sale, personal service, or cottage business, the seller may not have access to or not want to use digital currency transfers like Venmo or PayPal. They also may not want to sign up for costly services which allow cardholders to swipe and pay, like Square or Shopify. “I won’t be using any services that don’t take cards,” you may think, until you are stuck in the 4×4 beach, and they won’t tow unless you have cash.

Second, technical difficulties are sadly not an uncommon occurrence on the Outer Banks. Running a business or just living on a rural sandbar, miles from inland urban services means your internet does not have the fiber optic redundancy and repair service availability most are used to on the mainland. As longtime residents and visitors know, a misdirected dig or an unfortunate downed pole can mean days or even weeks without reliable broadband or even cellular data. Having enough cash on hand to pay for a few days of food and gas will make what could be a very frustrating experience go much smoother.

Thirdly, and most prescient for local businesses, are the credit card processing fees associated with running credit, debit card, and digitally based transactions. Averaging from 1.5 to 3%, these fees take a chunk out of what can be slim profits in restaurant and retail operations. As non-cash transactions eclipse cash exchanges, that percentage becomes a larger percentage of overall profits. Rather than consider these increasing fees as just another “cost of doing business,” businesses have started passing the convenience fee of using these non-cash payment options on to the consumers that use them. This new trend is seen in the “cash discount” option offered at some establishments. Instead of being surprised, have some cash on hand just in case a merchant is offering this discount.

So, when on the Outer Banks or traveling to another destination, consider having cash, or at least finding out where your bank or atm is located. It may just save your vacation, or at least save you some money.

Author: Jes Gray