Paper cash squeezed by plastic
Over many years, consumers have moved from precious metals to cash and now, increasingly to plastic. As credit cards represent loans and not money, the Federal Reserve does not consider them to be part of the nation's money supply. Nevertheless, statistics show consumers more often favor plastic over cash when making purchases.
There are 185 million consumers with credit cards, according to CardWeb.com. The average person carries 3 bank issued cards and 4 retail credit cards, which means there are more than 1.3 billion credit cards in circulation.
A recent survey by Dove Consulting and the American Bankers Association reported some 53 percent of consumer purchases are made with plastic. This represents an increase of some 23.3 percent in just the past 14 years.
The attraction of plastic is clearly growing fast. There are a number of reasons for this, including the most obvious: convenience.
Plastic is far more convenient than cash, which can cost over $3 in fees if you withdraw from an ATM that's not in your bank's service area. Credit cards are also less prone to theft or being stolen. Many banks or card services offer protection if you promptly notify them.
Spending transactions on credit cards offer a most convenient paper trail for businesses and taxpayers. This saves bookkeeping time and expense.
Because money charged against a credit card is at its heart a loan, plastic money has attractions when unemployment is high and banks are not lending. Introductory zero interest charges on new credit cards are particularly attractive. By transferring balances cleverly, consumers can obtain zero interest loans so long as they repay them with new zero cost money before the non-interest period ends and credit card charges kick in.
Unlike cash, many credit cards offer rewards for plastic purchases, such as frequent flier and purchase points. Even cash-back cards are becoming widely circulated. Some cash-back cards offer more than 6 percent return for shopping with them. Valuable and very convenient insurance coverage is offered by many cards for those renting vehicles.
Some credit cards offer extended warranty protection on purchases of TVs, computers, etc for up to a year. Often this coverage is equal to or more generous in amount and coverage period than what is offered by the manufacture. Furthermore, it usually automatically comes with the purchase, offering added convenience.
There are downsides to credit cards. Interest charged on unpaid credit card debt can be very substantial. Therefore, it is wise to pay off all credit cards in full each month if in any way possible.
Paying off credit card debt in a timely manner has three advantages. First, it encourages financial discipline. Second, a record of prompt payment of credit card debt can help to establish a high credit rating. Lastly, responsible use of a credit card enables consumers to establish a good relationship with their credit card company. In times of trouble, relationships can be helpful.
Though cash is king in most recessions, physical cash is being squeezed out by plastic money for convenience and rewards.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Email him at firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- State Supreme Court Justice McCaffery sent explicit emails
- Penguins release Carcillo from tryout contract
- Rossi: Pirates can’t waste McCutchen’s prime
- West Newton man found dead in helicopter wreckage near Rostraver Airport
- Coroner identifies Cranberry woman who died in McConnells Mill fall
- East Huntingdon man dies following police chase
- Steelers pressing to create opportunities to get to quarterback
- Indiana County authorities investigate suspected homicide in Blairsville
- Toomey joins chorus criticizing Goddard College for inviting Abu-Jamal to speak
- Hotel continues to pursue anti-trust case against UPMC, Highmark
- More hearings ordered for Sunoco pipeline across Pennsylvania