During the holiday shopping season, Americans are gearing up to splurge. Surveys indicate that the average U.S. shopper anticipates spending over $1,000 on gifts for Christmas and other winter holidays this year. With a plethora of payment options available, consumers often find themselves torn between different choices. Do they swipe their credit card and earn “free” miles? Or do they opt for buy-now-pay-later to spread the payments over time? Or perhaps use a debit card to avoid getting into debt? As a business school professor with expertise in this area, I've been pondering the best way to pay for holiday gifts without overspending. In my forthcoming book, "The Power of Cash," I offer counterintuitive advice - refrain from using credit cards, buy-now-pay-later, or debit cards. Instead, rely on good old-fashioned paper money.
Why Cash is a Wise Choice
Before making any holiday purchases, setting a budget is crucial. However, despite everyone acknowledging its importance, few actually follow through. Budgeting is similar to dieting - temptation and time pressure often lead to the best intentions being abandoned. I've witnessed this in my own life. During one holiday season, I meticulously set a budget. But with only a few hours left before exchanging gifts, I realized I had nothing for my three nieces. In a moment of desperation, I overspent on gifts that I doubt they ever used. Using cash can help prevent such mistakes. It offers a simple budgeting method - when you run out of cash, you stop shopping. It's not necessary to carry all your money in your wallet at once. You can take a portion of your budgeted cash or split it and keep some in a separate reserve.Research in consumer psychology shows that using cash causes a momentary feeling of regret. This helps slow down purchases and makes people think more carefully about their spending. On the other hand, when using credit cards, people don't feel the same pain as the bill comes due in the future. In the long run, paying cash is cheaper as you don't have to pay interest on purchases. Approximately half of credit card users carry a balance each month, and with an average balance of over $6,000, the interest on charged gifts can add up to hundreds of dollars.Moreover, many people buy holiday gifts for themselves, and research indicates that paying with cash makes them value the purchase more initially than when using electronic means. Cash payers feel a stronger sense of ownership as they have made a "mental investment" in the item.While using cash is straightforward for in-person purchases, it can be a bit challenging for online shopping as you can't physically insert paper money through a computer or phone screen. This holiday season, online purchases are expected to reach $240 billion. However, it is possible to use cash only for online shopping. One method is to purchase an online retailer's gift card using cash and add it to your account's balance. If you want to make additional purchases, you'll need to go to a place like a local supermarket and buy more gift cards with cash. This triggers the pain of paying and gives you time to think about whether the gift is appropriate and the right amount to spend.The holiday season is not just about consumerism; it's also about helping others. Paying for gifts with cash actually benefits those who don't have credit cards, debit cards, or mobile payment apps. Surveys show that millions of Americans are cash payers, and using cash sends a clear signal to businesses that paper money is still in demand.The holidays should be a fun time, but stressing about money can ruin the fun. Using cash can help you stick to a budget and avoid huge bills after the holidays. It may not make the holidays a jolly time on its own, but it eliminates one significant problem.READ MORE