Debit chic

2010-08-02

in Economics, Psychology

Back in the heady days of high stock prices, rising house prices, and seemingly robust economic growth, having an elite credit card with a high credit limit was a status symbol. Now that the whole world has been forced to confront problematic levels of debt, it seems like having the ability to make impulse purchases on credit shouldn’t have much cachet anymore.

Indeed, perhaps the humble debit card should be today’s status symbol. By breaking it out and typing in your PIN, you can demonstrate to everybody around you that you have the cash on hand to fund your purchase right now, rather than the confidence of Visa or Mastercard that you will be able to pay them back later.

{ 4 comments… read them below or add one }

Tristan August 2, 2010 at 7:24 pm

Whether you pay by credit card or not, you still pay for privilege.

Literally, paying by debit does not mean “you have cash on hand”, but rather someone else owes you the cash with which you pay (namely the bank). In other words, you pay your debt (for pizza, or camera gear, etc…) by transferring part of a debt someone else owes to you (your bank account). And chances are, the establishment you pay with that debt never sees the cash they are owed – they likely transfer the debt to an investment they see as useful before the “cash” ever changes hands.

The only time you actually “have cash on hand” is when you actually have cash in your hand.

Matt August 3, 2010 at 1:43 am

By paying with debit, you’re subsidizing someone else’s credit card use. Because stores have to pay Visa or Mastercard a portion of the sales, said stores have adjusted their prices to accommodate this. Using debit is just making the store more money. Using cash is making them the most money.

I’ve come to the conclusion that making as many of my purchases as possible on a 1% cash back credit card does me the most good. I don’t carry a balance on my card, so this works out to my advantage. It’s nice to get a couple hundred dollars back once a year.

Of course, if everyone paid in cash prices would be lower (theoretically). But because they don’t and are not going to in our electronic age, I might as well be the one “profiting” rather than “subsidizing.”

Tristan August 3, 2010 at 3:38 pm

“Now that the whole world has been forced to confront problematic levels of debt”

But one person’s debt is another person’s savings right? So aren’t high worldwide levels of debt are the same as high worldwide levels of wealth? A return to “robust economic growth” will mean a return to robust growth of debt, right?

Milan August 9, 2010 at 10:29 am

I’ve come to the conclusion that making as many of my purchases as possible on a 1% cash back credit card does me the most good.

I agree that this is generally rational. That said, I think I definitely end up saving more money when I use debit. When I see the balance of my chequing account falling, from paycheque to paycheque, it puts much more of a break on spending than seeing a credit card balance tick up.

That said, I do use my credit card for routine purchases (like my cell phone plan) and for travel.

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