Cash versus Debit Card: The Role of Budget Control

35 Pages Posted: 31 Jul 2014  

Lola Hernández

De Nederlandsche Bank

Nicole Jonker

De Nederlandsche Bank (DNB); De Nederlandsche Bank

Anneke Kosse

De Nederlandsche Bank

Date Written: July 1, 2014

Abstract

Due to the financial crisis, an increasing number of households face financial problems. This may lead to an increasing need for monitoring spending and budgets. We demonstrate that both cash and the debit card are perceived as helpful in this respect. We show that, on average, consumers responsible for the financial decision making within a household find the debit card more useful for monitoring their household finances than cash. Individuals differ in major respects, however. In particular, low earners and the liquidity-constrained prefer cash as a monitoring and budgeting tool. Finally, we present evidence that at an aggregated level, such preferences strongly affect consumer payment behaviour. We suggest that the substitution of cash by cards may slow down because of the financial crisis. Also, we show that cash still brings benefits that electronic alternatives have been unable to match. This suggests that inclusion of enhanced budgeting and monitoring features in electronic payment instruments may encourage consumers to use them more frequently.

Keywords: payment surveys, cash, debit card, consumer choice, budgeting, financial distress, self-control

JEL Classification: C81, D12, D14, E41, G21

Suggested Citation

Hernández, Lola and Jonker, Nicole and Kosse, Anneke, Cash versus Debit Card: The Role of Budget Control (July 1, 2014). De Nederlandsche Bank Working Paper No. 429. Available at SSRN: https://ssrn.com/abstract=2473957 or http://dx.doi.org/10.2139/ssrn.2473957

Lola Hernández

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Nicole Jonker (Contact Author)

De Nederlandsche Bank (DNB) ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Anneke Kosse

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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