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One of the things that surprised me the most about my trip to USA was how people view cash.
Its almost an inconvenience for store employees and clerks when you bring out the wallet and pull paper money out of it instead of plastic.
Even if paying in cash, many stores, specially hotels and car rental companies will ask for a credit card (just to verify). Yeas, right.
Most places have signs saying that they don’t have change for 50 or 100 USD bills. Even the ATM give money in 20s. The limit seems to be around 300 or 500 tops. Ridiculous given than in Argentina I can easily get 800 USD out of an ATM if I want.
Now, you could say there’s an easy explanation for this. Credit cards are more practical, employees don’t have to do all that hard math of figuring out how much change they have to give you back if you spend 4.99 and pay with 10 dollars, or you know, the hard manual labor of punching in the numbers and reading the right change to give.
But then again you could play the devil advocate’s game and find a couple other, less innocent reasons:
1)Using credit cards, at least when it comes to mass behavior, means people are much more likely to spend more than what they should or even actually have, sinking them even more into debt.
2)Its much easier to lie and control the economy if people use
virtual money instead of cash. A fiat currency is already bad enough when compared to gold standard times, but virtual money is so much better for both government and big companies that run them. You dont have to print your own money! Just click "edit" in the computer to create it.
3)For companies, they easily create a user’s database that goes into the most intimate detail. I mean, even the most simple program can tell how much money you spend on clothing, if they are low medium or high end, how much money you spend on luxury items, how much times you have sex based on how many Trojans you buy and what beer you prefer. All that provides a very detailed profile of you as a marketing victim … sorry I mean valued customer.
Companies can also charge you extra very much as they please, they have your information after all. If the car you rented smells like smoke you’ll get charged. You can explain that you didn’t smoke in it, that it’s a mistake, but you’ve already paid.
4) Its easy to see how a similar result to what we had after the crisis was achieved through much more subtle methods in USA:
After the economy collapsed in 2001, cash was in high demand and the government went out of its way to promote the use of credit and debit cards (which many stores weren’t even accepting by then). At the same time that accounts had been frozen and there was a weekly limit of 300 pesos to get out of AMTs, the government announced a 5% discount from the normal 21% tax on every item bought with creidt cards. 5% was pretty good, specially for people with an extremely tight budget, so it did help to promote the use of credit cards.
What has been done in USA seems to be much more effective though, it’s a pain in the butt to use cash so they win by getting you tired of all the inconveniences, nuisances and waste of time.
Don’t be fooled though, there’s a reason why they do this.
And also worth mentioning again, specially after seeing how people just aren’t used to having cash around, is the importance of having an emergency cash stash. If the economy ever goes to hell, or there’s long periods of time with no power, business will still try to stay opened and make money. That’s when they’ll look at cash with particular interest, all of them. The minimum would be having enough cash for a month worth of expenses. Even better would be that plus 1000 dollars per family member or enough to buy plane tickets for everyone in a hurry.
FerFAL
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26 comments:
Ferfal,
One thing of note to folks about ATM card limits, most banks will raise the daily limit if you ask, just call customer service.
I've recently found one local ATM at a drive-thru that will give $100 bills, which I had previously only saw in Vegas.
Fernando, you describe only the tip of the iceberg.
Most middle-class Americans have at most a few hundred in cash at any one time. Many women carry less than a 20 dollar bill most of the time.
If there's a banking crisis, checks won't clear. Credit card companies are already now cutting credit lines and closing accounts; a crisis would have them drastically reduce their customers' access to credit for fear of never getting paid.
People could *easily* find that the bank won't give them their deposited money back, the card company won't approve a purchase, and the store won't take checks. How are they going to buy gas, bread, rice, or the Trojans?
Bank accounts, CDs, stock accounts, etc. are all at most CLAIMS on money, they are not actual cash. In a crisis people will likely be unable to covert such accounts INTO cash, so if they don't have a stash of cash before the crisis they'll be OOL [Out Of Luck]. Then, after the crisis, who knows who will be "made whole" and who will be given but pennies on the dollar?
People who can consider this line of thinking should read:
http://online.barrons.com/article/SB124275522397735517.html
"Companies can also charge you extra very much as they please, they have your information after all. If the car you rented smells like smoke you’ll get charged. You can explain that you didn’t smoke in it, that it’s a mistake, but you’ve already paid."
Most credit card companies here in the US have very good buyer protection policies. If the rental company was trying to screw me over and I exhausted every last option of trying to reason with them, all I have to do is call up my credit card company, explain the situation to them, and ask for a chargeback. The credit card company will then refund the disputed amount, and then go after the business that tried to screw me over. In fact, I doubt the rental car situation would even go this far because merely threatening a chargeback is enough to make most businesses give up and stop hassling you. They'd rather drop the issue than deal with a ruthless credit card company that will surely make them miserable.
This is also why I make many purchases, especially large ones and online, with my credit card (and pay them off before they accrue interest, of course). I like having the option of a chargeback if everything with the sale goes wrong.
Yip of the Iceberg is correct. The latest banking regulation creates a new bureaucracy called the "Consumer Protection Bureau" This agency is tasked with keeping geo-tagged credit and debit card records in all transactions in order to "protect the consumer from abusive practices" Right. and Santa Clause is alive and well. Geo-tagging your purchases means that they will know exactly what, when and where you made any purchases. They can supervise your food purchases (too much fast food? Maybe we need to send a friendly government worker to visit. Buy some .45 ammo but dont own a federally registered .45 hand gun? Well, you might be conducting "straw purchases" and the AETF needs to investigate). Believe me I'm a huge gadget geek and I went back to cash or when absolutely necessary, Wal-Mart Pre-paid Visa cards.
buying plane tickets with cash
in the USA is DEFCON 4 on Homeland
Security's list of no-nos. you Will Have a TSA employee assigned to watch you during your stay in the airport and an Air Marshall targeting you while in flight. you will be followed after deplaning. so says my friend
with the ATF.
Credit cards charge merchants between 2-3% of the purchased amount for the convenience of accepting credit card payments. I can only imagine the merchant is embedding that convenience cost into the price of the good or service. In Mexico, many establishments have a cash price and credit card price, but slowly they are adopting the US way of doing business where all are made to pay a credit card surcharge, even those who pay cash.
Gallo@GTA forum
Another reason for stores to prefer credit and debit cards over cash is that it's harder for crooks to use stolen credit and debit card receipts.
Remember that stores have to worry about employees who might have their hands in the till. Stores also have to deal with robberies.
Stolen cash easily disappears (unless the bills are specially marked for some reason), while credit and debit card transactions leave an audit trail investigators can follow.
I don't think anyone in my area knows how to count back change anymore, it seems like it's no longer done, after the transaction it's just, "Here. Do you want your receipt?"
The way Rey describes the Consumer Protection Bureau sounds like how the Stasi were setup to operate, only instead of human spies they're using computers.
And people say the US is now like the old Soviet Union, how could they say that?
Due to all the counterfeit money going around my US city there are signs in many petrol stations saying they won't accept large bills for small transactions, and other such measures, some even have a type of reader to determine if money is not fake - muchh better than having them hold it up to the light looking for the barcode strip - such action announces to everyone nearby or at the front of the store, "A person with money everyone, look!"
I pay with twenties when I can, and oh boy do I ever notice where the money goes - as opposed to using a credit card - the things are like magnets to items I wouldn't buy when paying with cash.
I live in Las Vegas, which is the most cash intensive city in the US because of our gambling industry. However, I'm am still amazed at many Americans' resistance to hold even a minimum amount of cash. Some think they are less likely to be robbed if they have no cash. Others feel credit cards help them track their expenses at the end of the month. Perhaps this is true. But the reality is that (for anyone who has traveled and knows how things can go wrong during a normal business or pleasure trip) there is no substitute for cash.
Just live through a minor emergency like a hurricane, earthquake, or ice storm and it becomes painfully clear that cash is king when the electric power is out. I can only imagine how much more important it would be if the banking system became "limited" due to government actions.
Perhaps most depressing is the statistic that the average American family owes $30K in unsecured credit with an average annual (gross) earnings of about $50K. To the extent this is true, these people do not have the disposable income to dig themselves out of their financial hole.
I'd say you should hold 3 to 6 months worth of expenses in a combination of cash, gold and silver. If this approach doesn't work only ammo will be valuable.
You left out one very practical reason why businesses encourage credit usage instead of cash: employee theft. It is harder for employees to skim money off the business when cash isn't involved.
It's about to get ridiculous. The guy who got rich inventing Twitter has now come up with a little slotted square credit card reader the size of a quarter that plugs into your cell phone.
https://squareup.com/
It's free and works on Iphone and Android phones, but soon on all smart phones. He profits by charging you a small percentage of the transaction you take from someone. Previously you had to get a bulky reader from Verifone for $600+ and have complicated monthly fee user account.
But now a guy like Ferfal can stand outside a gun show or Home Depot or a State Fair or walk around a tailgate party with a shoulder bag full of his books and approach people and clean up. maybe it's good too!
It isn't all nefarious. A lot of it is driven by consumer preferences. People don't like carrying a lot of cash that could be misplaced or stolen. It's a bit safer, you also gain some protections from fraud by using credit.
One piece of advice: NEVER carry a Visa debit card - the ones that go directly to your bank account. If someone steals the number your account can be emptied without your knowledge. Sure, Visa can get your cash back but it takes time and you have to discover the theft first. Better to use an actual credit card you pay off every month and a PIN protected debit card.
Hi FerFAL
There's another reason why credit/debit cards are encouraged and cash is discouraged.
When you take cash from the ATM the money leaves the banking system. This is bad for the banks because of the fractional reserve system that we have. Depending on which country you live in, the 10,000 USD deposited in your account can be lent out many times over while the dollars in your pocket can’t be. Of course this is another reason why they hate gold in private hands.
Great blog, you're one of the good guys.
TG
Que Pasa FerFal! Or Howdy in Texas!
During the winter I had a Chinese woman come live with me. After looking around she does not want to live in the U.S. She said everybody looks rich, but we only have pennies in our pockets. It's because we spend too much on houses and cars, the average Chinese saves 30% of salary, but has no car and lives multigenerational apartments or company provided dorms. The Chinese woman actually lives in Holland, she says most places there are cash only, too.
Actually, in response to anon 11:35, it is MUCH easier to regulate your spending if you use cash. After reading about Dave Ramsey who is a financial guru who tells people to pay for everything with cash, I decided to take cash out of my account for food expenses and leave money in the account for gas (if there's a bank crisis, there won't be any fuel at the gas stations anyway, so I can stand to lose that money).
The bank whined and whined when I told them I wanted $380 in cash. A tiny amount, but it took some persuading. What if you're robbed? We have FDIC insurance, you know. (Ha, ha.) I have to go through this every month. But I spend a LOT less. I was running out of money halfway through the month, now I don't. (I'm on a US disability pension.) It is easy to overspend when you use a card, but with cash you don't.
Also, during a union strike against telecom co. AT&T last year, some union members cut fiber optic cables at a few select places in Silicon Valley in California, the world hub of high tech. Suddenly, the area had not only no credit card ability but no internet and no cell phones, as well as no landlines. It caused chaos. Nobody had cash, so no business could be transacted. The San Jose Mercury News website should still have the articles on their site, if you search. Now imagine if terrorists did that, or if the telecom co had a problem. Now if the banks had a problem, we'd all be screwed.
The US govt forces us all to use the banking system, they are eliminating paper checks and forcing all transactions to be done electronically for the benefit of their banker friends. The problem comes when the system shuts down, or is shut down. Suddenly, no payments can be made. Since the bankers want us to be reliant on them and the system for literally everything, and have the power to force it on us, there's nothing we can do.
Angry Cow
I still use cash. I don't even have an ATM card or a debit card, and I haven't had a credit card in several years. I use cash. Frankly, I don't care if it's an inconvenience to other customers or the cashier. It's more convenient than having to pay the bill at the end of each month :).
And no one can drain my bank account or steal my identity or track my purchases.
It is worth remembering that cash IS legal tender --by law, it MUST be accepted by all merchants.
"The bank whined and whined when I told them I wanted $380 in cash."
That may change; banks pay premiums to the FDIC based on deposits, and right now they make essentially no money on deposits (because good loan risks are few indeed). For this reason we are seeing banks reluctant to take more on deposit, especially if the customer does not borrow.
If banks close or withdrawal limits are enacted to prevent bank runs, lots of people who think they have money will discover they're poor.
"--by law, it MUST be accepted by all merchants."
HAHA - tell that to the guy who was turned away by the court because he wanted to pay his bill with a bag of pennies.
Happens all the time at the petrol stations too.
I even once saw a guy get turned away because he wanted to pay with a handful of quarters.
I've never owned a credit card in my 47 years - never really REALLY needed it. I cover my purchases with cash or money orders. And if seller isn't satisfied with that, I can go somewhere else.
Credit cards make it too easy. Just sign your name to the zipped card - done deal. When you physically pull out your wallet and count out the bills, you FEEL how much this item is costing you, thus slowing down your spending habits. At least, that is how it is with me.
Anon 11:35 makes a correction:
Per an Associated Press article yesterday - my numbers were incorrect. The average total debt per person in the US is $40K, both secured and unsecured. Further, average per person unsecured debt is $4400 of that total.
Average family income is approx. $45 - 55K per year depending on where you live.
We're obviously still in trouble with these debt ratios.
A lot of government services will not accept cash. For instance, the Sheriff will only take money orders, the city electricity provider will take everything but cash, and courts won't take cash (or so I have been told; I haven't had reason to experience this.).
However, they do take money orders, and chances are the gas station right down the street will charge you $0.99 for a money order than you can buy with cash.
If you do switch to cash only for things, remember that your credit rating is very important and that it builds credit to charge an item worth less than half of your limit and pay that off every month. I keep a debit card from my bank that goes to an account with only a little money, and a credit card with a very low limit and these have worked out well for me so far.
Anon at 8:52 PM, These are the guidelines for British Legal Tender. I assume American LT Laws are similar.
Coins are legal tender throughout the United Kingdom for the following amount:
£5 (Crown) - for any amount
£2 - for any amount
£1 - for any amount
50p - for any amount not exceeding £10
25p (Crown) - for any amount not exceeding £10
20p - for any amount not exceeding £10
10p - for any amount not exceeding £5
5p - for any amount not exceeding £5
2p - for any amount not exceeding 20p
1p - for any amount not exceeding 20p
Hmm, Jenna's chart doesn't make much sense to me (I'll have to spend some time learning, but I get the drift) it seems that when you combine coin spending limits with cash payment restrictions and limitations, there are currency controls slowly being put in place by both the market and the governments. Or something... I'm not sure, just a red flag.
Are electonic debits and credits squeezing out coins and paper money? Grisham's Law in action?
Hmmm. According to wiki, I was WRONG in my comment on May 31, 4:33pm.
Merchants do not have to accept cash -- they can refuse to sell to you. Legal doctrine seems to be that advertised price is merely invitation to negotiate a transaction and not a concluded contract.
On the other hand, if the transaction has occurred --i.e, if you have eaten a meal at a restaurant --then the restaurant has to accept cash as payment for your debt.
http://en.wikipedia.org/wiki/Legal_tender
With regards to making the use of cash seem out of date, there's a commercial here that one of the banks is running, promoting the use of their VISA debit card. It shows this huge line of customers filing through the register at a coffee shop, everything running smoothly and efficiently, until one poor schmuck steps up to the register and tries to pay with cash. Suddenly, everything comes to a grinding halt! Coffee crashes to the ground! People run into each other! Oh the horror, someone used CASH! Everyone in the line glares at him in disgust as he pays for his purchase with cash, and of course the minute he's gone, everything runs smoothly again as no one else would be so silly as to use cash.
Yep, they're making it not only inconvenient, but almost shameful to pay with cash now.
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