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Corner Office: Credit Versus Cash

by Richard Massaux
For the first time ever, this year has seen more consumer payments made in debit or credit versus in cash (Euromoniter International, September 2016). The major variable impacting this change is a demographic one: The younger generations are simply more comfortable using plastic than the older ones.

Ultimately, this does not truly impact our economy one way or the other, but it does foreshadow where the consumer payment space is headed: increasingly less reliant on cash. It takes time to get cash, cash takes up space and you have a better chance of losing it. As far as using debit and credit cards, they are much more convenient and efficient, and if you happen to lose your belongings the odds are you’ll be able to cancel the card before someone can rack up expenditures on it.

In addition to efficiency, there are other advantages to using credit. In some instances, there are enticing perks and rewards for using any number of credit cards. Cash back or flight miles are both excellent incentives for using credit cards. Also, actually building quality credit is important, especially for millennials. They are graduating college at record numbers with astronomical debt and without high-paying jobs. There is only so much that they can control in this scenario, but building quality credit is one of the things that they can.

Lastly, there is one other major player in this debate: electronic cash transfer companies. Ask a group of baby boomers to raise their hands if they’ve ever used an app on their phone to make electronic payments. Then ask a group of millennials to do the same thing. I’d guarantee that you’ll see significantly more millennial hands raised compared with the boomers. There are now apps that allow you to transfer money to and from friends without any cost (debit is free; credit is a 3 percent fee). If millennials are using plastic over cash because it’s easier, then it’s easy to see why millennials are flocking to these types of apps; they’re even easier than a physical card. For example, if four friends go out and spend $100 on dinner and one person picks up the bill, the other three friends can electronically send their shares of the bill to the person who picked up the check.

With the world of finance having so many different trends and variables that affect our lives, the demise of cash in favor of alternative routes of payment looks like it will continue. Millennials have placed simplicity and efficiency as paramount in their payment preferences. Because of this it’s no surprise that cash is on the decline, credit and debit card use is on the rise, and peer-to-peer payment apps are gaining significant popularity.

Published (and copyrighted) in South Jersey Biz, Volume 6, Issue 11 (November, 2016).
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