Are we getting closer to a cashless society?
Way back in May 2015, I wrote a blog post about an article that I found in The Telegraph by Jim Leaviss. Judging by the number of comments (at the time there were 3,208 of them) plus all of the social media shares; the Telegraph article certainly generated a lot of discussion. You can read it in full here (but it is behind their paywall). The story was part of a series, where respected people in the finance world at that time, put forward controversial ideas. A cashless society was one of them.
Basically, the premise of the article was; if we lived in a totally cashless society all our money would be in a government-controlled bank. This would make it easier to manage the economic boom and bust times.
In this futuristic cashless society, it would work like this. When the economy needed a boost, you would be charged for having funds in the bank. This would encourage you to spend rather than seeing your money being eaten away in fees and negative interest. When the economy needs to be slowed down there would be a charge on transactions to encourage you to save.
The thought of a centralised bank having this much control over our spending is still a somewhat scary concept. Particularly if you live in a country where the government can’t even run its own books and is hopelessly in debt, let alone manage the money for its citizens.
In this cashless society scenario how are you supposed to save for retirement? If you are encouraged to spend and are penalised for saving this would throw retirement planning out the window. There’s enough of us struggling with retirement planning in our current system.
How the world has changed in the nine years since that article came out. We have had a pandemic, where we basically weren’t allowed to use cash.
Crypto has risen and fallen several times.
The economy has also gone up and down, and governments are still printing the stuff for us to use.
AI is keeping an eye on our transactions, and we are actively discouraged from using cash. We get charged fees to put it into our bank accounts.
I don’t know about you, but over the years, I have been moving to being cashless. I would be lucky to have $10 at any one time in my wallet. I rely on plastic or my phone to pay for items on a day-to-day basis. Cheques have completely disappeared, and I pay my bills electronically via internet banking.
Having said all of this, I still have a fondness for cash. From a money psychology perspective, it’s important. It’s tangible, it helps us teach our children about money before introducing them to the electronic medium.
Using cash also helps us understand the pain/pleasure principle. Before cards came along, we would go shopping with a bundle of cash. We would hand over some notes and get some goods in return. We immediately felt the pain of paying and the pleasure of receiving. We could assess straight away if we were happy to suffer that amount of pain for that pleasure.
With electronic payments, we still get the pleasure, the instant gratification, but the pain is delayed, the second part of the transaction, the pain bit, only hits when/if you look at your bank account or credit card balance. Often, by the time this happens, you have lost the initial feeling of pleasure from the purchase. So, you might get a double dose of pain.
This is called the abstraction of money. The transactions have become easier, but our awareness of what we are spending has been diluted.
I have a challenge for you. If you don’t have any cash in your wallet right now. Go to the money machine and draw out a $20 or $50 note. Practice the pain/ pleasure principle. How long does that note stay intact before you break it? Once you have spent it once, how long does it take for the rest to disappear? What is the decision process you go through when deciding whether to use the note or not?
I’d love to hear your feedback and comments if you do the exercise.