Is cash still king? Exploring the pros and cons of your preferred payment methods

If you open your wallet right now, it likely contains a combination of cash and some cards (and maybe some apps on your phone). The whole country seems split too, one 2015 survey found that 51% of all Canadian transactions are made in cash, but another analysis ranked Canada as the country most embracing of cashless technology. You probably spend each when it's convenient — cash if you happen to have exact change or credit when you don't even want to think about paying right now — but there are far more advantages (and drawbacks) to each. So in the raging financial fight of cash versus plastic, there is no clear-cut winner — it's all about how you use them. We got some money-minded experts to give us some cold, hard facts on swiping in and cashing out.

The pain of paying in cash

The "pain of paying" is a real phenomenon, shown to decrease when payment is delayed (by using credit) or less tangible (by using plastic, like a debit card) and increase when payment is made most tangible and immediate (by using cash). "If there are specific stores where you always feel like you overspend," says Shannon Lee Simmons, a certified financial planner who runs the New School of Finance online, "bring only cash in with you for a bit and see how much more mindful you are. People often complain about groceries, the hardware store or the drug store. If you only want to spend $50, only bring that with you." If you really want to crack down, take larger bills with you. According to financial coach Matthew Siwiec, the type of bills you carry matter too. "Individuals typically have an increased hesitation to cash higher denomination bills," he says. "Breaking a $50 bill is much harder than a $5 bill. Once small change is made (under $1), I find that it's often not carried around and kept at home." Furthermore, Siwiec suggests going so far as laying out certain cash amounts for certain expenses and shopping excursions ahead of time, so you're never caught unprepared.

Harder to spend, harder to save?

On the flip side, while cash may be harder to spend, it might also be harder to put away. A recent study found that, when given the choice between some money now or more money later, those who were offered the amounts in cash were more likely to take the smaller amount upfront, compared to those who were offered the same amounts on a card. Simmons notes that "Most people won't take cash that's been given as a gift and deposit it in the bank, because they will likely spend it on something," and the immediacy of physical money may wreak even more havoc on those in cash-based industries. Siwiec finds that those working in food services, construction and other cash-based positions "often will spend a large majority of this money on lifestyle expenses and will not save or invest it." The major issue is that cash requires another inconvenient step to get into your bank account, while direct deposit puts it directly there. So while cash may force spending control, it requires even more discipline to save.

Tracking your spending

Another drawback of physical money is that it's a lot harder to track, especially when compared to cashless methods that offer instantaneous updates of your financial status. Simmons says the best way to keep your mind on your money is to "Use debit!" If you do use cash, she recommends keeping receipts. Siwiec believes it's also important to first implement "an overarching and up-to-date budget" and then "making weekly or bi-weekly withdrawals" of exactly the cash you need, so you can be more mindful of specific amounts.

Getting the best deal in the long run

As impractical as it would be to pay for a car with a briefcase full of cash (you're better off with a bank draft or money order), there can be benefits to making some larger purchases up front and in full. "The big benefit is that you may be able to bargain a discount if you pay outright for specific large items and avoid debt," says Siwiec, but putting cash on the table might not always be the best bet. Even though a credit card payment is more long-term, it may also have other long-term benefits. "Certain credit cards will offer extended warranties and points for large purchases," he says. "There can also be protection in cases of fraud or disputed charges." He offers the example of a mobile device: providers often offering perks such as two-year insurance up to $1000 if your phone is lost, stolen or broken, but only if you purchase via credit card. Similarly, you might not want to use cash for avenues that require long-term protection, like in-home construction. "While you may save," Siwiec explains, "this payment is typically paid under the table — therefore lacking accountability for poor workmanship or fraud, and will have no insurance coverage if the work person is injured or damages your residence." So, while cash may get you a break upfront, if your purchase needs long-term care, stick to swiping.

Picking a card

It wasn't that long ago when the new kid on the block was debit, changing the game as the intermediary between cash and credit. All plastic was not created equal, so if you find yourself having to make a choice between the two, when is debit better than credit? "Always!", Simmons exclaims, "Debit is wonderful because you never have to worry about a bill you can't pay." The finite nature of debit transactions, based on your current bank account, is why Siwiec also advises that it's the perfect card if you have debt you need to reduce or if you're unable to pay off your current credit card bill within one to three months. If you're someone who can control their debt, Simmons says, "The only thing lacking (with debit) is the points credit cards bring, but I'm hopeful that will change." Even still, points are only good if you use them — one estimation found that Canadians may be sitting on $16 billion in unused rewards points. So, if you're able to make those credit card points, rewards and cashbacks work for you while staying debt-free, then credit may yield the best benefits to you.

Going digital

Paper versus plastic is really only the tip of the iceberg — Canadians now have more ways to pay than ever, with options like Apple Card and services like Uber making digital-only finances an even-more immediate future. But more convenient ways to pay might only increase our indulgences. Going digital "can be dangerous for overspending," says Simmons. "Frictionless spending makes it super easy to spend money in the blink of an eye without having to worry about it until later." However, more options means more competition, forcing payment services and financial institutions to up their game. Siwiec believes this is ultimately a positive for Canadians as digital options "are fostering increased amounts of competition to traditional banks; forcing them to reduce MERs, have higher savings account rates, and more." As Canadians continue to grow into a world that's steadily becoming cashless and cardless, it's crucial to manage the traditional methods while anticipating the dynamics that lie ahead.

Choose your weapon

With every option having its benefits and drawbacks, what's the best choice? Probably a little bit of everything. Siwiec believes they can all be "viable options in the creation of an individual or a joint financial management strategy," and that the best choice depends on what aligns best with a person's financial situation and personality. Being versatile and strategic with how you spend and save, based on what brings out the most discounts and perks along with your best behaviour is the only way to ensure your wallet is working for you.

What's in your wallet? Do you have tips or questions on strategic spending and saving? Make a deposit below.