Award-winning writer covering consumer and small-business credit cards.
Need to buy a power bar, breath mints or a lighter? Chances are you’ll leave your credit card in your wallet and pay with a crisp bill or a handful of coins.
Believe it or not, 45 percent of consumers who own rewards credit cards say cash is still king for purchases under $10, according to a new CreditCards.com poll. Debit cards (30 percent) come in second, while credit cards (23 percent) take a distant third place as the payment method of choice for buying inexpensive items.
The national survey of 1,000 consumers found that even the promise of racking up points and miles isn’t enough to convince consumers to pull out a rewards card for every little purchase.
“Cash is not dead,” says Robert Manning, finance professor and author of “Credit Card Nation: the Consequences of America’s Addiction to Credit.” In fact, he adds, bills and coins will likely remain popular for everyday purchases in the future.
Here are the top findings on how consumers, including those who own rewards cards, pay for inexpensive items:
- Cardholders make bigger buys on credit. Consumers who use rewards cards tend to buy more expensive items on credit to get the rewards. The tipping point: $25 was the median purchase total at which rewards cardholders say it makes sense to use credit.
- Younger millennials love credit. There’s a deep cash-versus-credit divide within the millennial generation. Younger millennials (ages 18-27) were far more likely than any other age group to say they usually use credit for purchases under $10 (41 percent) and were least likely to use cash (24 percent). In contrast, only 24 percent of older millennials aged 28 to 37 prefer credit, while 36 percent typically use cash for small purchases.
- Consumers fret about credit card debt. A quarter of consumers say they use cash or debit cards for small purchases due to concerns about credit card debt. However, rewards card users should pay off their cards in full each month, since it makes no sense to pay an interest rate of 17 percent or more to reap far less in rewards.
- Your politics might affect your payment. For buying inexpensive items, 53 percent of Republicans prefer to use cash, compared with only 39 percent of Democrats.
The telephone survey of 1,000 consumers was conducted for CreditCards.com by SSRS between Aug. 28-Sept. 2, 2018. See survey methodology
Plunking down a bill feels faster than dipping a chip card
A January 2018 Federal Reserve report showed consumer demand for cash is growing, and that cash is used by a “large majority” of consumers of all ages and income brackets. About $1.69 trillion in U.S. currency was in circulation in September 2018, up from $1.58 trillion in September of the previous year.
Why does cash remain a top choice for in-person purchases, even in the age of sweet rewards card deals and easy digital payments? For one, the idea that credit is the most convenient payment form doesn’t hold true for many consumers who need to grab a bag of chips, a tube of lip balm or a Powerball ticket.
The survey found that the No. 1 reason consumers avoid credit for small purchases is that it’s easier or quicker to use other payment methods (40 percent).
That’s why Pam Horack, a North Carolina-based certified financial planner, sticks with cash to pay for sundries. She says paying with a card has become slower and less convenient since the widespread U.S. rollout of more secure EMV chip cards that started in 2015 and requires cardholders to “dip” a card into a card reader and wait 15 seconds or longer rather than quickly swipe. (The good news? EMV transactions are getting faster.)
Additionally, each card reader is slightly different, so a customer might have to stop and think while following the prompts, Horack says.
“Many people are still going to use cash because it’s so much simpler,” Horack says. “You whip out a five, get your change and you’re good to go.”
Is it worth using a rewards card for small purchases?
Some rewards card users want to rack up as many points or as much cash back as possible, and they know small purchases add up. For example, $9 spent every day on a latte and a scone adds up to $3,285 per year. Paying with a 2 percent cash back card will put $65 back in your pocket per year.
However, consumers may view the rewards they will accrue from a single small purchase as negligible, says Joel Steckel, professor of marketing and vice dean at the Stern School of Business at New York University.
This is partly because most consumers don’t keep an exact running tally of their points or miles in their minds, he says. That vagueness might contribute to making non-rational decisions based on what feels like a large enough purchase total to earn an acceptable amount of rewards, he says.
Steckel said he tends to use cash for small purchases and pulls out his rewards card only for purchases of $20 or more. “If you ask me how many rewards points I have on my card, I won’t be able to tell you,” he says.
The rewards on a $20 purchase, if you have a card that pays 2 percent cash back, are about 40 cents.
But the stakes increase if you’ve just opened a rewards card with a sign-up bonus, since these cards require you to spend a certain amount within a set time period after opening the account to get the extra points or miles. In that case, small purchases can inch you closer to earning a big pile of rewards.
However, multiple studies have found that consumers spend more when they pay with a credit card instead of cash. Why? Psychological research suggests people feel more “pain” from spending cash, says Utpal Dholakia, professor of marketing at the Jesse H. Jones Graduate School of Business at Rice University.
So the question to ask before using your rewards card is, “Will I get enough value out of the rewards to make up for the amount I’m going to overspend on purchases?” Horack says.
Weighing the pros and cons of payment methods
One major benefit of carrying cash: you can generally use it anywhere. (A warning to the cash-only set: that’s changing, and some establishments now don’t take cash.)
But the problem most consumers have faced until now is getting caught without cash. Yes, most small businesses accept cards due partly to the proliferation of mobile card readers for smartphones and affordable payment processing systems. But even in 2018 you can still walk into a corner shop or a hole-in-the-wall restaurant and spot a “Cash Only” sign.
A 2018 report from the Mercator Advisory Group found that 95 percent of 2,047 surveyed businesses with annual revenues of $500,000-$10 million accept payment cards. But that means about 100 out of the 2,000-plus small businesses surveyed don’t accept cards.
Aside from acceptance issues, other factors to consider when choosing a payment method for small purchases include:
Budgeting – Some experts recommend using credit for all purchases as an easy way to track and analyze spending habits. For example, Dholakia says he uses the budgeting app Mint to manage his finances, and his credit cards are connected to his account. He finds it helpful to go back and look at how much he spent on, say, coffee over the course of a month or year.
However, Horack says she finds it “easier and more realistic” to track only larger purchases and withdraw a set amount of cash for small purchases each week or month. “When you put something on credit, you’re spending next month’s money instead of this month’s money,” she says.
Security – Another big downside to relying primarily on cash: you may have little chance of recovering a wad of bills that gets lost or stolen. Recent research from the Federal Reserve Bank of Atlanta found that consumers rated cash poorly for security.
Additionally, credit cards offer consumer protections that other payment methods do not. Federal law limits your liability for fraudulent purchases to $50, but nearly all card issuers offer zero liability. And, unlike debit cards, credit cards don’t give a fraudster access to your actual bank account.
Cash can be a safeguard against debt distress
It’s also smart for consumers to think about debt, says Kathy Hauer, certified financial planner and author of “The 11-Step Do-It-Yourself Comprehensive Financial Plan.”
While Hauer uses her credit card so much that she recently ran short of cash on a trip to the circus, she recommends consumers who carry card balances stick with cash for small purchases until they’re out of debt and confident in their money management skills.
“Cash really does make you think twice about spending the money,” she says.
CreditCards.com commissioned SSRS Omnibus to conduct telephone interviews with 1,002 adults living in the continental U.S. Interviews were conducted by landline and cell phone in English and Spanish from Aug. 28-Sept. 2, 2018. Statistical results were weighted to correct for demographic discrepancies. The margin of error for total respondents is plus or minus 3.72 percent.