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Paper, not plastic: Does it make cents to use cash?

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Consumers seeking ways to tighten spending have long been advised to switch to using cash. In light of the massive data breach at Target and other major retailers, more people wonder if using cash is safer as a way to thwart hackers and protect accounts.

In an increasingly cashless society, is using cash a viable option – or a royal pain in the back pocket?

Who carries cash?

Tufts University found gender and generational differences in who is likely to carry cash. The study said that men carry nearly double the amount of cash that women do and use roughly 50 percent more cash each month. It also found that Americans under age 35 carry half the cash that those over 55 have on hand.

On the IWillTeachYouToBeRich website, author and personal finance adviser Ramit Sethi, who methodically tracks every dollar in his budget, used cash exclusively for two weeks when his credit card was stolen. He was surprised that he spent 18 percent less as a result.

Why? Sethi concluded that drawing cash out of an ATM forced him to become more conscious about spending. "Rather than blindly using your credit card and deferring whether it’s worth it or not until your bill comes — by that time, it’s too late — using cash forces you to make that decision when you pay," he writes.

Some say it's not easy going green

Writing in London's Guardian newspaper, another writer used cash for every purchase possible for a month. He complained that an increasing number of items that can only be purchased with plastic were off-limits, including ebooks and advance-purchase bus and train tickets. But he found that he cut purchases by 10 percent.

Forbes magazine had a story about a three-month study that MasterCard did with summer interns. Half of the Millennial-aged participants could only use cash, while the other team could only use plastic. “It was frustrating to have to walk unnecessarily to an ATM to get money to buy something,” said participant Denver Lobo. He encountered difficulties while traveling without plastic; it was impossible to buy a plane ticket with cash, the story noted. Dividing restaurant bills with a group was also a hassle.

On the DailyWorth blog, a writer experimented with using cash only for all discretionary purchases for one month. She found that she spent less time shopping. "Now when I needed something, I walked into a store, found the item, bought it and left, rather than linger in the aisles looking for other things I might “need.” (Ooh! Face scrub!) No more spending as a diversion for the delicious hit to the pleasure center of my brain." She also said the experiment kept her from being tempted by online purchases.

Cash users spend less

A fascinating study from MIT found that subjects paid up to 100 percent more when they were instructed to use a credit card instead of cash. Researchers who study the psychology of money talk about "payment decoupling," their term for the fact that credit cards allow shoppers to enjoy their purchases for weeks before they have to part with the money. Research also finds that non-cash payments feel less real and more like Monopoly money. (That's why casinos have you gamble with chips, not cash.) A study in the Journal of Consumer Research finds that even foreign currency "decouples" users; people spend more abroad because the foreign bills just don't feel real.

Yahoo Finance said that over the next decade, debit cards are expected to overtake cash as the main form of currency used for all transactions.

For people struggling to control spending, financial guru Dave Ramsey advises giving The Envelope System a go. The simple system asks participants to stash cash into a series of envelopes at the beginning of the month, then use it for expenditures like groceries, restaurants, entertainment, gasoline and clothing. When the money runs out, the spending stops until the new month begins. "You must remember that the very purpose of the envelope system is to curb your spending and teach you discipline," Ramsey insists. "When you run out of grocery money, eat leftovers instead of going food shopping. If you see your gas money is slipping away faster than the remaining days of the month, then limit your trips."

But paying with cash is not without its cost. A study covered on the Today show found that cost is related to fetching the money; the average American spends 28 minutes each month (5.6 hours a year) hitting the bank or ATM. The average fee to use a non-network ATM is up to $3.85 per transaction.

The story concluded the cost of cash is highest for low-income Americans who don't use banks.

“Those who are unbanked are four times more likely to pay fees to access their own money,” said study co-author Bhaskar Chakravorti. “A lot of people have the idea that cash is a poor man’s best friend. We feel that the poor are actually getting screwed across the board."

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