Is Cash-Free Really The Way To Be? Maybe Not For Millennials
Smartphones have new, seamless ways to purchase stuff lightning fast, with just a tap. With these new digital technologies available for mobile payment, many young people are ditching cash and plastic altogether.
But is traditional payment dead? According to Doug Conover, an analyst with the Federal Reserve Bank of San Francisco, not exactly.
"The perception that young people rarely use cash is just not correct," he says.
The Federal Reserve Bank put together a study asking people to keep a diary of their spending. Compared with their elders, young adults (ages 18 to 24) reported using cash more, for nearly half of all purchases.
Still, their favorite way to pay is plastic, though not the plastic most might think. Some students say they keep a debit card, instead of cash or credit, to tighten their belts.
One of NPR's technology reporters, Aarti Shahani, visited San Francisco State University to see if the mobile revolution had taken over the campus. She, along with financial expert Chris Hogan, joined Morning Edition host Renee Montagne to discuss how the age of "cash or credit" may not be a thing of the past.
"You are a big advocate for using cash instead of credit," Montagne says to Hogan. "What about the benefits of this idea of 'pain of payment' that was discussed in the report? How do you see it?"
Using cash enables people to have control, Hogan says.
"I think for young people — as well as older people — that awareness and being able to control cash will allow them to make financial progress in the areas that they're looking to strive in," he continues.
But, what causes "pain of payment?"
"A lot of kids on campus are like 'Yeah, having cash, I spend it less, I feel it more.' Others were like 'Oh no, having a dollar bill here or there, I just start buying things I don't need,' " Shahani says. "And so, one thing that I found very interesting was this idea that debit cards are a useful way to constrain spending because people don't want to swipe all of the time and the debit card is attached to money that you possess. It's not credit. It's not this pernicious cycle of borrowing what you don't have."
Still, what about the growing number of digital cash-free payment systems, Montagne asks, such as Snapcash and the new system recently announced by Facebook?
"In the old days, if I borrow money from my friend, I pay it back — put cash from my hand to theirs," Shahani explains. "And now it's possible to essentially email or text money over to people that you've borrowed from. Snapcash, which is a product of Snapchat, and now Facebook Messenger, you can now text or message over the money. It's tied to your debit card, so you are taking from money that you currently possess.
"And so, there are all of these different apps that are coming up that are making it easier to just throw around little bits of money between friends," she says.
Hogan encourages people to use an envelope system to manage their money.
"It's where you literally, as you get paid, you would go to the bank, get cash, and you would literally put money in an envelope," he says. "This is what you're saying, 'This is how much we're going to spend on eating out. This is how much we'll spend on groceries.' And what it is, it allows you to set these physical financial limits on these categories. And so it gives people the ability to be able to control their money in ways they never knew possible."
But, while the cashless systems are convenient, Hogan says they can create a disconnect for how much money you're spending.
"How would the both of you compare millennials' attitudes about money to their parents and their grandparents at this same young age?" Montagne asks.
"People seem really wary of the mistakes of their parents," Shahani says. "There is something relieving about, you know, that it's not lost on them that their parents were deep into debt. And people seem to carry that maybe in the way that their parents' generation didn't."
And if their parents talked to them about money, they are likely way ahead of the game, according to Hogan.
"Well, I would venture to say oftentimes with younger kids, if their mom and dad never talked about money in front of them or never taught them about money, they're literally going out into the wilderness alone," he says. "And so, you have the credit card companies that are lurking on campuses just waiting to get their claws into them. ... If we can kind of get them to step back and look at this, I think some of the younger people that have been educated by their parents, they do know that 'hey that's not my friend.' ... I think more of them are getting educated or we're at least trying to spread the word so they don't start off behind."
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Transcript
RENEE MONTAGNE, HOST:
Smartphones can give you access to your money through a variety of digital systems. Given that, we wondered if younger people are more likely than their parents to go cash free. As part of our occasional look at the modern family, we sent NPR's tech reporter Aarti Shahani to San Francisco State University to find out.
AARTI SHAHANI, BYLINE: I'm giving a little quiz to undergrads Naomi Garcia, Marianne Bogue, Mark Garcia and Joe Mendez. Name the person on the $1 bill.
NAOMI GARCIA: Abraham Lincoln.
SHAHANI: On the $5 bill.
MARIANNE BOGUE: Um.
SHAHANI: On the $10 bill.
MARK GARCIA: Man, I just woke up from a - I had an 8 a.m. I can't think right now.
SHAHANI: On the $20 bill.
JOE MENDEZ: All I know is he has, like, a tall set of hair, like, it kind of, like, bushes up, I think.
SHAHANI: In case you're wondering, it's Washington, Lincoln, Hamilton and big-haired Jackson. You could take this as proof that kids these days, in this mobile generation, never use cash, but you would be wrong.
DOUG CONOVER: The perception that young people rarely use cash is just not correct.
SHAHANI: Doug Conover is an analyst with the Federal Reserve Bank of San Francisco.
CONOVER: And our study found that they are using cash and using it quite heavily.
SHAHANI: The Fed asked people to keep a diary of how they spend. Compared with their elders, young adults, ages 18 to 24, reported using cash more for nearly half of all purchases. Still, their favorite way to pay is plastic, though not the plastic you might think.
MENDEZ: I have a debit card.
SHAHANI: Joe Mendez says he hasn't even applied for credit. And according to the Fed study, only 7 percent of young adults say they prefer credit, which is less than any other age group.
MENDEZ: I don't know. I just heard that, like, it's bad to kind of, like, start using a credit card when you don't really have, like, kind of, like, a job or money.
SHAHANI: Some students say they keep a debit card instead of cash or credit to tighten their belts - Naomi Garcia.
NAOMI GARCIA: When I take money out, I find that I waste money more. Like, I break a $20 and then I see it at - oh, it's only $5. I'll spend it here.
SHAHANI: This is fascinating because it contradicts a very popular concept in social science - the pain of payment; this idea that when you pay with cash you spend less because you feel it more. Economist Priya Raghubir at New York University says paper money causes you to spend less.
PRIYA RAGHUBIR: You see the amount. It's written on the banknote. If in the absence of actually seeing that amount, you don't have a strong memory trace.
SHAHANI: But the pain of payment could be a myth. Economist George Loewenstein at Carnegie Mellon says the real difference could be between money you have - cash or debit - versus money you borrow - credit.
GEORGE LOEWENSTEIN: I think that that distinction might actually be more important than the distinction between plastic and cash.
SHAHANI: So far, smartphones have not revolutionized how this campus pays for stuff, but they have changed the way some people track their spending.
BRENDAN SULLIVAN: Mint is awesome.
SHAHANI: Brendan Sullivan uses the financial app Mint. It pools his checking and savings accounts, lets him make budgets and watch his money, which he does multiple times a day.
SULLIVAN: Probably like a nervous impulse.
SHAHANI: He uses the app to make plans.
SULLIVAN: Like, if I know I want to go to an upcoming show that's, like, $20 and I have, like, $30 in my account then I know I can't, like, eat out that night or something.
SHAHANI: His buddies, who were standing a few feet away, have never heard of Mint.
DEXTER DYSTIE: Like, a breath mint or no.
SHAHANI: We explain and Dexter Dystie pats him on the back.
DYSTIE: That's responsible of him. Yeah, right? I'm very proud (laughter).
SHAHANI: Though he's not rushing to the app store to follow his friend's lead.
MONTAGNE: That is NPR's tech reporter, Aarti Shahani, who was speaking at San Francisco State University, but she joins us now to talk more along with Chris Hogan. He's a financial expert and speaker. Welcome to you both.
SHAHANI: Hi.
CHRIS HOGAN: Well, thank you.
MONTAGNE: Let me begin with you, Chris Hogan. You are a big advocate of using cash instead of credit. What about the benefits to this idea of the pain of payment that was discussed in the report? How do you see it?
HOGAN: Well, I think when you utilize cash it does enable you to have control. And so I think for young people, as well as older people, that awareness and being able to control cash will allow them to make financial progress in the areas that they're looking to strive in.
SHAHANI: You know, Chris, one thing that I found very interesting was this idea that debit cards are a useful way to constrain spending because the debit card is attached to money that you possess. It's not credit. It's not this pernicious cycle of borrowing what you don't have.
MONTAGNE: Let me turn the two of you to a subject that I wasn't really hearing in your piece, Aarti - the growing number of digital cash-free payment systems, things like Snapcash. Facebook has just announced its own system. First of all, for those who don't know, and they're quite new, describe how these systems work.
SHAHANI: Sure. So, you know, in the old days, if I borrow money from my friend, I pay it back. I put cash in - from my hand to theirs. And now it's possible to essentially email or text money over to people that you've borrowed from, right? It's tied to your debit card, so you are taking from money that you currently possess. And so there are all these different apps that are coming up that are making it easier to just throw around little bits of money between friends.
MONTAGNE: Chris Hogan, let me just ask you about people who are going to use these cash-free options and how it fits in to one of your strategies - if it does. And that strategy involves an envelope system. Tell us what that is.
HOGAN: It's where you literally, as you get paid, you would go to the bank, get cash and you would literally put money in an envelope. This is what you're saying - this is how much we're going to spend in eating out. This is how much we'll spend on groceries. And what it is it allows you to set these physical financial limits on these categories.
MONTAGNE: How does that fit in to these new digital cash repayment systems?
HOGAN: Well, I think the, you know, these cashless systems are very convenient. I think the one danger of it is that it can create a disconnect into really how much money that you're spending.
MONTAGNE: How would the both of you compare millennials' attitudes about money to their parents and their grandparents at this same young age?
SHAHANI: People seem really wary of the mistakes of their parents. It's not lost on them that their parents were deep into debt, and, you know, people seem to carry that maybe in the way that their parents' generation didn't.
HOGAN: If their mom and dad never talked about money in front of them or never taught them about money, they're literally going out into the wilderness alone. And so you have the credit card companies that are lurking on campuses, just waiting to get their claws into them. I think some of the younger people that are - have been educated by their parents, they do know that hey, debt's not my friend. And so I think more of them are getting educated, so they don't start off behind.
MONTAGNE: Thank you both so much for joining us.
SHAHANI: Thank you.
HOGAN: Thank you very much. Transcript provided by NPR, Copyright NPR.
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