Cash versus Debit Card: The Role of Budget Control
35 Pages Posted: 31 Jul 2014
Date Written: July 1, 2014
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: Suggested Citation