Mellody Hobson: To save money, skip the plastic
Planning to buy something today? Mellody Hobson suggests you pay with CASH:
Financial pundits have long predicted our transformation to a "cashless society." And it's true: paper checks are so last century -- while online payments, debit cards and pre-paid cards have skyrocketed in popularity.
According to the most recent Federal Reserve Payment study, cash accounts for just 14% of the total value of transactions the average American makes each month.
And it's not just large purchases. These days, there is no shame in using plastic to buy everything from a pack of gum to a bottle of water.
The smartphone has further distanced us from our wallets. Paying with mobile apps is transforming the way we spend. According to Bankrate.com, nearly 8 in 10 Americans carry less than $50 in cash.
Now while this cashless trend is great for banks and credit card companies, consumers should be wary. Why?
Simply put, studies show we spend as much as 18% more when paying with credit or debit cards.
The added expense comes down to psychology. Putting a purchase on a card doesn't quite feel like spending money. There is no cash withdrawal, and no dwindling stack of bills in your pocket. Plastic is just so easy! Not to mention, there are all of those incentives -- points, cash back, online discounts.
So it's not surprising that, as a country, we owe $733 billion in credit card debt, with the average household more than $15,000 in the hole.
I say, stop digging.
Here is a challenge: For just one week, pay for everything with cash. Dinner with friends? Cash. Your weekly manicure? Cash. Filling up at the pump? You're paying cash.
If you complete my one-week cash challenge, you're more likely to stick to essentials and less likely to grab those impulse purchases.
Bottom line, you should spend considerably less money. That's money you can invest towards your long-term goals. And when your credit card statement comes, you'll go from seeing red ... to seeing green.
From Mellody Hobson:
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- What you need to know about umbrella insurance (CBS News Moneywatch)
- Planning for retirement in your 50s (CBS News Moneywatch)
- Planning for retirement in your 40s (CBS News Moneywatch)
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