Why the Cash Versus Credit Argument is All Wrong!

This or That Why the Cash Versus Credit Argument is All Wrong!

So I just finished reading a personal finance blog with a guest poster who wrote about cash versus credit and as is usually the case with the blogosphere, this guy is advocating for using credit cards instead of cash.  In the interest of “good-will”, I shall leave the guest blogger nameless but all you have to do is Google cash versus credit and read where most of the mainstream personal finance advice lies.

Let’s hit his arguments one at a time, shall we?

Argument Number 1 For Using Credit Cards From Guest (im)Poster:

“Sure, it’s generally better to get that transaction over and done with – with a loose $20 or a charge to your checking account, but it’s a fact that some transactions are safer and more rewarding when you swipe your credit card

Why? Because credit cards are by and large a more secure way to make purchases than debit and – believe it or not – cash. Seriously – when’s the last time you received purchase protection on an item you paid for the ole’ fashioned way?”

Rebuttal Number 1:  Get the transaction over and done with – with a loose $20 or charge to your checking account; really?  First of all, when you use a debit card, you are ‘debiting’ your account and spending money you currently have, not charging it.  Secondly, how is swiping your credit card more rewarding?  This was never explained in the article (probably because it’s not explainable!)

The author also wanted to know; when was the last time you received purchase protection on an item you paid for the “ole fashioned way?”

This one completely threw me for a loop.  Did he mean purchase protection when walking in and paying cash at a retail establishment?  If so, here’s my response:  before making any purchase at any retail establishment, you should always find out what the “refund policy” is.  I call this “common sense” purchase protection for all you Amateur Consumers icon smile Why the Cash Versus Credit Argument is All Wrong!

If he meant; Do you get purchase protection from swiping a debit card? The answer to that from many banking institutions is YES!  Here are a few banks that provide protection on both consumer credit and debit card usage:

https://www.bankofamerica.com/privacy/accounts-cards/credit-debit-card-security.go

http://www.regions.com/personal_banking/regions_safeguards.rf

https://www.wellsfargo.com/debit-card/protect/

Argument Number 2 for Using Credit Cards from this Guest (im)Poster:

“Using your credit card online is advantageous to paying with debit for a few reasons, but the most obvious being that it’s less risky to use your credit card for web-based purchases since it’s not attached to your personal bank accounts. 

The more websites you spread your banking information on (via debit card use), the more vulnerable your checking and savings accounts become to identity theft. Credit cards are notoriously stronger for weeding out suspicious items charged to your card. Not to say banks are bad at signaling ID theft – they’re just generally not as quick to identify suspicious activity.”

Rebuttal Number 2:  If you checked out some of the links for banks listed above, you would see that you would, in fact, be protected the same by using your debit card for purchases as you would a consumer credit card.  Again; do your homework and know whether your bank or credit union stands behind you in the event of fraud or identity theft.

Let me add this little tidbit: the author of this blog post added; some credit card companies – like Discover and Chase – have some excellent online marketplaces where you can redeem accumulated cash back or points at discounted rates. So if you have cash back or rewards accrued on your credit card, you’ll save even more using your credit card.

Say what?  Spend more to save more?  This guy is starting to sound like he pushes credit cards – Oh wait; he does.  Keep reading icon smile Why the Cash Versus Credit Argument is All Wrong!

Argument Number 3 for using credit cards from this Guest (im)Poster:

Speaking of rewards, Mr. personal finance blogger and guest poster goes on to say; if you’re the proud owner of an airline miles credit card, you could be missing out on some seriously free miles by opting to purchase your airfare with debit or cash.

Few big-ticket items net you more rewards than airfare. Plus, credit card issuers like American Express and Chase offer excellent travel discounts when you redeem through their online marketplaces.

And finally, if you have an airline-branded credit card then there’s no reason not to use your airline miles credit card. Earn VIP status with your favorite airline by racking up the freebie miles and making travel purchases with your travel rewards card. (A no-brainer, but worth a reminder.)

Rebuttal Number 3:  This one is a little tricky.  If you are a frequent flyer; defined as flying anywhere between 25,000 – 100,000 miles a year and you are footing your own bill, then using this type of consumer credit card could be beneficial to you.  But if you’re not, stick to using cash!

Hell, if you don’t have a credit card (I haven’t used credit in over 2 years), here’s an excellent article on how to buy airline tickets with cash!

Rewards…or Regret

This guy’s last piece of advice on his guest post was using your credit card for Concert or Sport Tickets because…wait for it… some card issuers offer some serious perks when you purchase event tickets using your credit card. For example, American Express members that carry their prestigious Gold Card (among several others) are granted access to special Gold Card Events which can include preferred seating, pre-sales and discounts to some of the best entertainment and sporting events.

Really?  OK.  If you have the Amex Gold Card and you can, and will, pay off those tickets in full when the bill comes due, then go for it!  Otherwise the “spend more to get more” argument is just above the “spend more to save more” argument!”

Here are 2 Indisputable Reasons Why Using Cash is Better:

  1. By using cash (or your debit card), there is absolutely, unequivocally no way you will ever experience credit card debt!  ‘Booyah’; take that personal finance blogger boy!

Besides the fact that cash is accepted EVERYWHERE, some people have argued that using your credit card is a way of getting an “interest free” loan if you pay it off in full when the bill comes due.  As we all know, the road to hell is paved with good intentions, or in the case of personal finance; the road to credit card hell!  So without further ado, here’s reason number two of why using cash is better:

  1.  Life happens; but by using cash, you make sure “shit” doesn’t happen – as in bad!

Oh, and the author of the guest post works here.  Think he has an agenda?

Look; when advice is passed on in the blogosphere as personal finance advice when it’s truly just a “marketing message” disguised as personal finance advice, that’s when I have to call HORSESHIT!  It’s why I wrote Who Can You Trust When Taking Credit and Financial Advice.

What about you?  What are your thoughts about using cash versus credit?  Please let me know by leaving a comment below.  If you liked this post, please share it with your friends by clicking one of the social sharing buttons to the left.  Now Comment Away icon smile Why the Cash Versus Credit Argument is All Wrong!

 



The Cause and the Cure for Debt and Bad Credit

An ounce of Prevention The Cause and the Cure for Debt and Bad Credit

In my last post, I spoke about what I thought was the most overused term in personal finance; financial literacy.  And as many of you know who follow my blog, I have been through a journey of complete credit and financial devastation.

But as I traveled this journey while blogging about my experiences and trying to pass along life lessons about accelerating the process of credit and financial recovery, I had an epiphany.  The more I wrote, the clearer the picture became for me personally that it wasn’t about accelerating anything other than the way I thought about finance and consumerism.  Keep reading icon smile The Cause and the Cure for Debt and Bad Credit

Finding the Cure, Ignoring the Cause

Without a doubt, I have a lot of knowledge to pass along to my readers about performing a Credit Audit & Verification of their personal credit report that you would know if you viewed any of my free video lectures –  The Better Credit Blueprint.

But again, many of you just want to correct errors and inaccuracies in your credit report, right?  Hell, let’s just call it what it is; many of you just flat out want to “fix” your credit.  Am I right?  So here’s the million dollar question; and then what?  Why are you “fixing” your credit anyway?  Is it only to get back in the game of consumerism?

Consumerism as the Cause

Submitting your life to consumerism is like sitting in a rocking chair—it’s always in motion but it never gets you anywhere. So why do you struggle with it?  Why do we struggle with it as amateur consumers?  No folks; I submit to you that fixing your credit and recovering from debt is not what we should be concentrating on personally, collectively, or as a nation.

We need to learn how to prepare, and yes, defend ourselves from the battle that is being waged everywhere we go and on a daily basis!  We have become a nation of debtors and much like the medical profession; we concentrate on cures when we should be looking at prevention!

Time for Thought Disruption

Before you learn how to drive, you receive a learners permit right? And you have to pass a driving test before you can actually get behind the wheel of a car.  But why don’t high school seniors have to pass a comprehensive financial literacy test in order to graduate?

We know graduation to mean the receiving or conferring of an academic degree or diploma.  But I would argue that graduation encompasses the entire secondary stage of life!  Whether that next stage is college or getting a job, there is a blueprint to be followed in order to live a balanced life that will allow you to chase your dreams unencumbered!  This will take thought disruption!  Keep Reading icon smile The Cause and the Cure for Debt and Bad Credit

“No man can cause more grief than that one clinging blindly to the vices of his ancestors.”

William Faulkner

So let’s get back to that thought disruption.  The normal American dream is to hopefully go to college, graduate, get a job or get in business, buy a home and start a family.  Sounds about right, no?  Do you know the one constant throughout that entire process?  Think real hard.  Go ahead; I’ll give you a few minutes…

It’s consumerism!  If we define consumerism as the preoccupation of society with the acquisition of consumer goods, when you make a choice of where to attend college, does money play into your decision making process?  Unless you’re Mitt Romney and you ask your parents for a loan to start a business, you better believe it!

When you decide on what career path to take, does money enter into the decision making process as well? Absolutely!  What about buying a home, car, or obtaining financing? Hell – to – the – YES it does!

The entire process is littered with economic decisions that if made incorrectly, could possibly ruin you for the rest of your life!

Opportunism Abounds

Opportunism abounds…but not for you and I; it abounds for the banks, lending and retail institutions, and the Jones’.  Here’s what I mean:

  • It abounds for the lending and retail institutions who find every way possible for you to get what you want right now, while mortgaging away your tomorrow to get it!
  • It abounds for the Jones’ because they know you are watching and no matter how hard you try, you just have to keep up with them!  You can’t help yourself; it’s what we are conditioned to do.

“An ounce of prevention is worth a pound of cure”

Benjamin Franklin

Has there ever been a simpler idiom stated in history than this one?  It simply means that it’s better to avoid problems in the first place, rather than trying to fix them once they arise! But how would consumerism exist, if for example; middle and high school students learned the psychology of consumerism before they graduate?

How would it survive if our children learned critical decision making skills and the art of frugality as I covered in my last post?

The answer is it would survive just fine!  That is; if consumerism was only defined as the protection or promotion of the interests of consumers.

So The Cure For Debt and Bad Credit is…

If consumerism is the root-cause of debt and bad credit, then the cure is comprehensive financial literacy for our children before they get out into the real world.  If we prepare them for life as they graduate to the secondary stage of their lives, whatever that may be, then truly they will be free from the chains of debt and bad credit that many of us have been enslaved to and free themselves to pursue their dreams unencumbered!

What a beautiful thought!  So I ask you; is not an ounce of prevention worth a pound of cure?  This is an important discussion and I am very interested in what your thoughts are, so please share them below.  If you liked this post, please share it with your friends as well.



Financial Literacy versus Financial Life Building Skills

Financial Literacy Post1 Financial Literacy versus Financial Life Building Skills

Google financial literacy and it turns up over 9,540,000 results.  Results vary from articles like Financial Literacy for the College Student to organizations like 360 Degrees of Financial Literacy , to thousands of personal blogs dishing out advice!  To summarize, they all pretty much cover the same thing;

  • Debt
  • Budgeting and Savings
  • And Money Management

The Meaning of Financial Literacy

So what exactly does financial literacy really mean anyway?  The National Financial Educators Council (NFEC) defines financial literacy as: “possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family and global community goals.”

Wikipedia defines it as the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.

And finally, Investopedia defines it as possession of knowledge and understanding of financial matters and mainly used in connection with personal finance matters.

The Most Over-Used Financial Term in History

I would argue that the most overused financial term in history has to be Financial Literacy!  Let me give you an example:  This past weekend I attended Broward County’s Title I & Head Start Annual Parent Seminar.  The Keynote Speaker was Dr. Boyce Watkins, one of the most highly sought after African-American scholars in the world and Finance Professor at Syracuse University who specializes in financial psychology.

I was given the opportunity to ask him a question during a group session and could think of no better question to ask than this; “Given the last 5 or 6 years of turbulent economic times we have just gone through, the fact that the room is full of many Title I parents and educators, and how little is actually being done nationally to make financial literacy a part of our children’s education, do you think financial literacy should be an important component in education?

The Financial Literacy Answer

When Dr. Watkins took the mic back, he stated he absolutely believed financial literacy was important and that schools were clearly lacking this component.  However, he made sure to tell the parents in attendance to take it upon themselves to teach their kids these valuable lessons.  But what happens when parents themselves aren’t financially literate?  How then can they teach their children these Life Building Skills necessary to ensure a successful transition from school to life?

Upon Dr. Watkins finishing his statement, one of the presiding executive members of the Parent Advisory Council for Title I immediately asked for the mic to set me straight(I think :))  She said that in Broward County they had a Junior Achievement Program that taught financial literacy to students and that my kids just haven’t made it there yet since they were only in Kindergarten and Second Grade.  Hmmm; I’ll have to investigate!

Responding to Criticism without Being Defensive

As a member of our school advisory council who interacts with educators and administrators, why is criticism or suggestions always followed with defensiveness?  Another parent chimed in stating there were also programs where the kids could go to the bank and learn about using checking and savings accounts and how to write checks and use a debit card.  Of course I had to ask for the mic back – just to set the record straight of course icon smile Financial Literacy versus Financial Life Building Skills

Dr. Watkins was kind enough to allow me a rebuttal.  I added that I was not talking about simply using a checking account, how to use a debit card, or to learn about understanding the free enterprise system as the Junior Achievement Program does.  I was talking about “Building Life Skills” that would serve the children later in life such as learning the difference between a want and a need when making a purchase, the psychology of consumerism, and the mindset needed to achieve balance and happiness in life for our children’s long-term future.

And this is where the rubber meets the road!

Without a doubt, financial literacy is a very important component and I believe students should be required to pass a comprehensive course in high school in order to graduate!  But financial literacy is much more than just learning how to budget,  save, and money management; it also means learning the psychology of consumerism and how to protect yourself from becoming a part of our Debtor Nation…and this is where the rubber meets the road!

The fact is; consumerism is as American as baseball and apple pie.  But in the process, consumerism has also made us a nation of debtors.  If you want it, you’ll get it whether you actually have the cash to buy it or not!

A Nation of Debtors

Did you know that personal debt at the end of the nineteenth century was illicit, illegal, and always personal (between family and friends), and became by the end of the twentieth century, legal and institutional (between a person and a lending institution)?

Louis Hyman, Author of Debtor Nation: The History of America in Red Ink says the growth of consumer credit re-framed the largest business narratives of the twentieth century as the second industrial revolution.  Sounds like this was a very well thought out strategy of capitalism and is definitely a topic and blog post for another day!

Comprehensive Financial Literacy Needed

So the question is not; which is better?  The question is; should  financial literacy be redefined and made more comprehensive to include financial life building skills?  I believe the answer is an unequivocal and resounding YES!  Here are the components I would add:

  • The Psychology of Consumerism:  The why’s, how’s, and when of making purchasing decisions and why the deck is stacked against you as an amateur consumer!
  • Critical Decision Making: How to analyze and compare purchases as well as how and when to consider “alternatives” to making new purchases such as buying used or second-hand or re-purposing an existing resource, or simply coming to the conclusion that you really can do without .
  • The Art of Frugality:  Being frugal does not mean being cheap or having to settle for less!  Frugality, as I have been living it for the last several years, is a virtue!  Learning how to be frugal will free our kids from the chains of debt that many of us have been enslaved to and free them to pursue their dreams!

As parents, could we ask for anything more?  For the record: since my financial and credit meltdown, financial literacy has become a huge part of my family’s life. Critical thinking and analysis is an everyday process we all use and we always discuss finances.  I truly want my kids to be free to pursue their dreams before they get in the game of life – not during or after!

What about you?  Are you teaching your kids Comprehensive Financial Literacy?  Do you feel schools are doing enough to prepare our kids to participate in this ever increasingly credit economy?  Please leave your comments below and share this story with your friends!