Card transactions are rising at their fastest rate since 2008, sparking fresh claims that we’re rapidly heading towards a cashless society. It’s no surprise, when you consider how quick these kinds of payments are. I used to think they were slower than cash when PINs had to be used, but contactless is faster, more convenient and even has the benefit of monthly audit trails. Unfortunately, it also gives the cardholder the false impression that everything is available – something I believe is encouraging debt.
Back in September, the FCA urged action on Britain’s £200bn debt mountain. In particular, it highlighted the plight of many workers in the gig economy and on zero hours contracts, who often resort to credit to make ends meet.
As I’ve discussed previously, understanding the circumstances of borrowing is vital to preventing borrowers entering a debt spiral. I agree that we must look at the economic context that might force them into borrowing to pay their bills at the end of the month. That said, we also can’t hide from personal finance trends that could lead to an uneducated or unhealthy attitude to shopping either.
The value of money
Last year, a survey found that 59% of shoppers spend more than they’d intended when they don’t have to hand over cash. 72% said digital payment methods like contactless credit cards encouraged impulse buys. Why?
Personally, I think that we sometimes need a physical reminder of what we’re paying to understand the impact of losing it. If we make money abstract, it’s easy to avoid thinking about it. The records of your purchases still exist, but there’s no reminder to look closely at what’s happening and we lose our sense of value.
Dealing with the problem will take a lot of effort on many fronts. Debt earns fees and commission with each overspend, which incentivises credit providers to provide more and more. They sometimes even automatically extend limits without asking their clients. This worsens the problem by making money seem even more easily available and less valuable, so remedying this is perhaps the first step.
I also think cash should encouraged for certain products – and people who don't like to bank their money shouldn’t be penalised by the system. After all, genuine cash is a guaranteed method of payment and it's easier to keep track of.
Individual responsibility is a factor too. To ensure consumers are aware of that, and empowered to act responsibly, we need to continue pushing for better financial education. This is something I’ve argued for before.
However, the most effective way of implementing change isn't necessarily clear-cut, and I believe there’s a shortage of ideas on this front. How can we reach out to the ordinary consumer? How involved should our financial institutions be and should the public sector lead the charge? I'd be interested to hear your thoughts.
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