Reasons to use Cash

I was asked by a friend in early 2021, now that the Government is using COVID-19 to try to get people to stop using cash - do you still think, mid COVID-19, I should be using cash?

My answer: Yes! As much as possible. In fact, for me COVID-19 is great in that it helped me think through again. Do I want a 1 in a 1000 chance of COVID-19 to make me give up all the 1 in 1 reasons to focus on using Cash?

The Rogers outage of 2022 made me more convinced. The Telus outage in Feb 2023 made me more convinced.

Seeing my 10 year old daughter blow through a $25 dollarama card … then the next day express regret (2023) made me more convinced.

So I've updated my long standing discussion on why you should use cash. And no - cheating on your taxes is NOT one of the suggestions I am offering.

It is far too easy to spend money on a credit card, cash makes people (me) think more carefully about each transaction, and helps keep to a budget. Basically, using credit cards and debit cards means the 'value' of the money appears much lower and it is much easier to waste it in ways that you or I will regret later.

Apple and Samsung make it even easier: Just don't think about it, just tap your cell phone and poof - all that money will magically go out of your account without any feeling of pain for you at all.

Cash is beautiful. Well except for the US dollars! Look at the Canadian dollars, or Papua New Guinea or Costa Rica or any one of 100 other countries. I like the feel in my hands. I like how tangible it feels and how it helps me see value in what it can buy.

The Love if Money is the root of all evil, credit cards help you supercharge (pun intended) your love if you aren't very careful.

If you deal in cash you WILL get money come through that is worth more than the face value. For example, I routinely find a specific Canadian bill come through my hands (about once a month) in change given to me that is worth 2.5x's it's face value selling on eBay. I don't check for all the things (like bills with serial numbers < 10,000 or bills with serial numbers like 987654321 - too much time for the very limited chance of value, but maybe it will be worthwhile for you.) But for the obvious ones, it's kind of a nice treat to hand over a $20 bill to buy an $8 item, and getting a $10 bill back in change that is worth between $14 and $35 on ebay, once you know this, it is so easy to spot, it takes you no time at all to get that extra value. Now the hard part: Do you hold on to them for a few more years and let them appreciate in value? Or do you lock in the $4 to $25 value 'now' and sell them right away. A fun choice to have to make. Hint: when you calculate inflation in, it is almost always better to sell it ASAP, worth a lot more … well unless you spend it on junk you regret later!

I wonder if Bank tellers are allowed to buy money that passes through their hands? I'm wondering if they could double their salary this way!

If you force yourself to use cash, and you don't have enough on hand - you don't buy! Again, helps budgeting. This is also called delayed gratification - people often find that, with a few days thought, they don't really care so much about the item as they thought they did. When I was younger I wanted to buy all the cool things in exotic stores but didn't have the cash, now that I'm older, I find I can enjoy just looking at them in the store, knowing there are 1000 more that I'll enjoy next year.

Back in the days when I used to use credit cards, I would easily go and buy a Timmies or a Starbucks or McDonalds or eat at a restaurant. Now that I use cash almost exclusively, I almost never do those impulse purchases. This saves me a ton of money (physical and ethereal)

Some people give a discount for cash, or charge a fee for using a cheque, draft, credit card, debit card etc.., This is because it COSTS them money to accept all those other forms. I suspect that some people also use it to cheat on their taxes, but I have seen NO indication of that on the cash, even large cash, transactions I've been involved in since I still get receipts from them, but I obviously could be wrong.

"Buy local", it's the same principle therefor: To be NICE and help local businesses be more profitable: Even if you don't get a discount, if you pay in cash, the vendor gets to keep all of it. If you pay by credit card or debit card, they LOSE some of the money (pay a fee + percentage.) So … if you LIKE the place you are shopping - be nice to them, pay cash whenever possible. If you pay a tip on the credit card, the server loses some of it to the credit card company, and I've heard from some waitresses, that the 'boss' is more likely to take a cut of tips for themselves and /or to 'share' with the waitresses that don’t get as large of tips (possibly because their provide poorer service?), paying cash won't guarantee the waiter or waitress gets the full tip, but they should get at least, and likely more, than if you paid by credit card.

Look at it this way: Amazon etc.., are severely hurting 'local' businesses. Amazon has to have credit card costs. If you start to use cash for EVERYTHING local, you will put more money the hands of your local supplier, your municipality, everyone around you instead of in the hands of the big banks. Now… if you are feeling sorry for the big banks and hate your local suppliers, then feel free - keep paying with a Credit Card.

Having said that, if you check my credit card, you will find I buy most things online. So I admit I'm not consistent. I have, at least I think, developed good online buying habits over the past 30 years (it's 2020 as I write this - yes I was an early adopter of online buying.) If you look at my credit card you'll see the majority of where my money goes other than charitable causes - I do not want my charitable donation, whenever possible, to be short changed to the charity by the credit card fees. Unfortunately, government rules sometimes make that impossible … while not exactly charitable - political donations are not allowed to be done in cash (government conspiracy? I don't think so … it is because people in government KNOW that politicians are the biggest cheaters on average, and so they have to apply more rules to at least try to keep them closer to the national average of cheating.)

COVID-19: The government appears to be using this to try to get rid of cash even more, all wrapped up in the rhetoric about COVID-19. But I give them credit, they've not pushed it too hard, they've gone after bigger fish for now (2021.02), and yes I know there are conspiracy theorists about the government getting rid of Cash, I'm not personally worrying about that.

Studies I've seen suggest that you will buy less junk food with cash than with credit. This seems like an excellent reason! A study in the journal "Obesity" said that children with a prepaid school account eat significantly more calories than those that have to pay with cash. This is unfortunate given schools like the one my kids go to are forcing everything to NOT be cash. This teaches bad habits and encourages poor choices. Studies show you'll less often spend it on frivolous things that you will forget or regret. Note: This is based BOTH on general attitudes of what frivolous purchases are AND based on what the person themselves says frivolous things are, so this is not a 'judgment' call, this is something you will agree with and then non-regret as often if you use cash.

On the other hand, there is the OPPOSITE you need to be aware of the "burning a hole in your pocket" where children and adults, having money in their pocket, feel a burning need to spend it. For THOSE people, a credit card MIGHT help - though I doubt it, I suspect if you are one of those, a credit card will be a volcano of lava burning a hole in your pocket.

No targeting or re-targeting marketing schemes and you also don't have to check your credit card statement carefully to see if there are any charges that aren't yours. You will have so few that it should be easy, even if you, like me, buy lots on line. (Yes I know I'm being inconsistent.)

Note also that if you do use a credit card, the more you use Cash, the fewer transaction you have to check on your statement, so again, the more cash, the easier your life becomes.

I was on a business trip around 2007 and happened to sit with a young CRA gal who said she was an auditor for the CRA. She made the comment "All people who use cash are crooks". Wow! Only about 20 years before that, you couldn't buy groceries EXCEPT by cash (or cheque)! What was doubly funny: She was saying this in a Latin American country where almost everything was done using cash - most places didn't even accept credit or debit, she did state, more than once, that she assumed all of the restaurants and hotels etc.., that accepted cash in that country were likely cheating on their taxes and when challenged she dug in with double emphasis that businesses and people in Canada that use cash are all crooks. She made it clear she thought that EVERYONE in Latin America were crooks, and called ANYONE in Canada who ever used cash was a crook.

How ARROGANT this 20 something year old CRA auditor was (maybe she was older and just looked young and acted stupid.)

People like her give CRA a bad name.

So this brings me to: If you travel, compared to the alternatives, Cash is SO much more convenient and SO much cheaper (no huge credit card fees on converting money to another currency, no 'out of country' fees on bank and credit card translations.) Years ago I used traveler's cheques, but I have found that they are very hard to use these days, and there are fees on using them, banks will routinely charge a fee of 5% (And don't forget the bank charged you 3% or more to buy them - the 'conversion' fee) and most places won't accept them so you HAVE to go to a bank, and in some places the banks will only cash 'so many dollars per day' so if you get there too late, you may have to wait until tomorrow. No, traveler's cheques are not a benefit for travelers anymore. For me, I phone my bank 10 days before a trip, and 'order' money in the currency I'm going to go to. Or I go to some place like "Auburn coins" if they carry the currency I want - if they do, their rate is better than the banks. If you travel to one country often, consider opening a bank account in that country (if you are allowed) but remember and calculate the monthly fees to be sure it is worth it - it probably isn't.

Credit card interest. You probably know, if you accidentally make a mistake paying your credit card, you will be hit with a huge penalty and huge interest - even if you miss the payment by ONE MINUTE. There used to be a credit card company, Royal something or other, that I had: It had the OPTION, that I took advantage of, where it promised to take the money out of your account on the day it was due so you would never be late AND it gave 1% 'cash back'. This is before 'cash back' and other gimmicks were common place on credit card. But the TD bank, Royal Bank, Bank of Montreal and a few others ganged up on it and forced the government to shut them down because they were 'cheating'. They had some 'consumer protection' reasons - something about the consumer not knowing the amount being removed - for their objection. But everyone, including them (according to my Airdrie TD bank manager friend at the time, John,) knew the REAL reason was, they didn't want to have to do the same thing because it would drastically cut into their profits - because people wouldn't 'forget' to make a payment, and people paying late was where they really raked in the dough. I cut up my TD bank's personal credit card in front of John when they did this and I have never personally had a TD credit card since or a card with any of the banks I remember being part of that deceitful action. Anyway, my point is: you need to be extra careful to not be late paying credit cards, much better if you can to always pay cash, or failing that, pay cash as much as you can to limit your risk. The banks will (consumer protection my eye) do everything they can to encourage you to forget to pay on time.

But I admit, as of 2021, I still use credit card for most translations. I do some cash, but not nearly as much as I should. The proof? Look how fat I am. (See the obesity study above.)

Reasons to NOT use cash:

If you DO do a lot with cash/most with cash. CRA will incorrectly decide/conclude that you are a thief and a cheat, and I have seen it personally, 9 years after the above story, when CRA thinks you are a cheat, they will try even harder to catch you in a mistake, or catch you in something you can't remember or can't prove - and then assign taxes, interest and penalties. (Though I eventually found sufficient proof for almost everything) So … if you ARE going to go mostly cash, my advice, and it is what I follow, make sure you scrupulously follow the tax laws so there is as little as possible for them to even question - because they are going to treat you like a criminal. Oh, and keep records on EVERY transaction that is traceable (e.g. bank accounts) so when they ask "what's this $1000 deposit" you can tell them, because if you don't - they will conclude it was unreported income. In my case I had a loan repayment from a family member and I had forgotten what it was - so the CRA auditor decided it was undeclared income. Fortunately I eventually remembered what it was - but I had no records to remind me because it had nothing to do with income/taxes so why WOULD I have a record!

And something I learned the hard way: CRA tries to trick you by saying you can delete/destroy your records after 7 years. Then when you have a transaction that partly depends on prior transactions they deny it saying "you can't prove that happened 15 years ago." I've heard that the BC government has started to confiscate property when you can't prove WHERE you ORIGINALLY got the money from. They legally can now ASSUME you are a thief unless YOU can PROVE otherwise. I'm sure CRA is drooling over this type of legislation. So … CRA purposely tricks you into destroying your records after 7 years - don't fall for their ploy. Keep your financial records until 10 years after you die - or several years after your estate is settled - whichever is LONGER.

They even tried this on RRSP contributions for me, but to the credit of the auditor, she and her boss finally relented and agreed to accept THEIR numbers that THEY had been carrying forward. Their argument was that THEY could have made a mistake way back when and so they didn't trust their own reported numbers, because THEY had destroyed THEIR old copy of the records. When I said "so are we agreed on everything else, and the only thing is you are disputing your own numbers for RRSP contributions - so the RRSP contributions are the only thing we need to go to court about" … since it only made something like a $500 difference, they decided reluctantly to accept their own numbers without proof that they had calculated them correctly. But imagine if it had been $50,000 things would have been different. But I would have gone to court, just to see them try to explain to a judge "Sorry Judge we, CRA, destroyed the records, so we can't be sure that WE calculated the number wrong so WE want to deny Peter under the grounds that we MIGHT have made a sloppy mistake 10 years ago."

If you are in the USA, I understand that the IRA folks are even worse than the CRA. (There ARE some humans that work for CRA - I've met some of them.)

NEVER get rid of financial records, whether you buy with cash or not.

Oh, and if you really ARE trying to use cash for cheating on your taxes. Don't. First, it's wrong. Second - you may get caught in a 'lifestyle' audit. I can't imagine any way that I could use cash instead of non-cash in any major way that would involve cheating on taxes and not have it show up in lifestyle etc.., But I admit, I haven't spent any amount of time trying to think like a cheat and I don't plan to try to think that way.

I expect that COVID-19 has caused a lot of people to spend less cash. As a result, if you use cash in 2021 and further in the future, the Government of Canada CRA is more and more going to make the assumption that you are a criminal when you receive payments in and use cash. It remains to be seen how strongly this goes. For me … I work a lot in Latin America, so I'm probably going to increase my use of cash in the years that come.

If you have a gift certificate, these are close to cash, but if the company goes out of business (common in the COVID-19 era), your gift certificate can fall with no warning to a zero value. Now, if you want to be careful with your money: Don't buy something at a place where you happen to have a gift certificate, use the gift certificate there because you have it or because it is the same price (or close) for the same value, but try to spend gift certificates as soon as possible, and don't buy them as gifts. Exception: if you get a DISCOUNT for buying it, and you can spend it is a short time period (so unlikely the company will go bankrupt) then that can be a good decision.

For this reason, I try to never give a gift of a gift certificate to friends, I don't want their gift to lose value. Besides … if I'm giving $50, wouldn't it be better to let them spend it ANYWHERE rather that forcing them to spend it at the location of MY choice? (Yes I've heard arguments for why you are being nice when you force a person who doesn't have enough money for food to buy themselves a nice shirt before they die of starvation - I guess I'm sort of overstating the case here….)

Coupons: Sure, use coupons to save money, but then pay the rest in cash. I look at the cash portion to make my decision since the coupon has no value if not spent buying the item it is for. But if you have a 50c coupon to buy the candy in a place that charges $1.50, but you could buy the same candy for 0.88 at your next dollar store trip…. That coupon is costing you 12 cents.

Less hassle to use a Debit or Credit card. If you have no budgetary concerns (always have more money than month) then this is possibly a good reason. Having said that, I've found that 'self-made' wealthy people seldom take this attitude, but people who 'fall' into wealth, inherited, won the lottery, became rich quick such as movie or sports stars, often have this attitude about money - and often become 'not-wealthy' very quickly because they act like they have no budgetary concerns.

Points. If you are good at self-control, then using a credit card for 'the points' can be a net reward. But be careful, spending extra money because of 'the points' often will put you in a worse position. Think about this: If you buy a chocolate bar for $1.50 because you get 3.5% I points, when you could have gotten the item from the dollar store at 88 cents … you lost because of the appeal of 'the points'. On the other hand, if you were going to buy a block of cheese this month for $20 anyway, and your PC Points give you $4 in value - that's probably a good deal. Oh, and be careful how you can spend the points. Better off having a card that has points you will spend on things you were going to buy anyway (such as groceries) and earning points with gasoline/diesel purchases that brings the cost down to less than the competitor - that is good value. But then spending the points on an expensive item you otherwise would not have bought? That is seldom a good decision. I'm not trying to say you shouldn't - but I am saying that the credit card and points can make you blind to the decisions YOU want to make. YOU should decide how you want to spend your money and then do it that way, but credit cards 'with points' tend to make you do things you will (or would have if you realized) later regret.

You HAVE to at least HAVE a credit card for any car rental place I've seen, and if you rent a car with your credit card, then if you are in an accident, you likely (check first, some cards dropped this benefit during COIVD-19) have extra insurance.

If you lose cash, like a certified cheque, it is gone and you can't get it back. If you lose your credit card, you can limit your liability - typically to $0 in practice, simply by notifying the credit card company it is gone. With cash, if you are carrying a lot, you should split it up into multiple spots, advantage, you can't lose it all as easily, disadvantage: you have to keep track of where it all is.