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Financial literacy lessons to be learned from cash

Categories : Cash contributes to education
July 26, 2017
Tags : Budget control, Cash, Consumers, Education
An experiment demonstrated that using cash only raises awareness about the actual value of money and help reduce weekly expenditures.
Communication Team / Equipo de Comunicación
The first steps into working life can be challenging. In fact, many youth are often unprepared to appropriately budget their expenses and consequently find themselves with an empty bank account before the month’s end. This is what happened to Alexandra Holterman when she moved to New York City for a 3-month journalism internship. To improve her spending habits, she followed the advice of finance advisor and author Ramit Sethi who states that the use of paper banknotes should enable consumers to save 18% of usual two-week expenses.
The experiment covered only her daily expenses as monthly rent and insurance were paid by her parents. The process began with an evaluation of weekly expenditures. As is the case for many other consumers, Alexandra never paid much attention to her expenses carried out by debit or credit card. She therefore had to rely on her bills to estimate her weekly expenses.  
The use of cash raises awareness about the actual value of each purchase as one can tangibly feel the banknotes going out of his/her wallet. Furthermore, consumers using paper money have a greater sense of priorities. They can only spend what they have and must thus focus on essential items. As a result, cash teaches consumers to naturally budget, plan and anticipate. What’s more, the use of cash reduces impulsive shopping – especially regarding small-value items – as each purchase is challenged. Various studies demonstrated that the use of cash reduces junk food purchases. Still, specialists recommend taking only a small amount of money at a time to avoid overspending. 
At the end of the two weeks, Alexandra managed to save 32% of her benchmark expenditures but admitted that she sometimes deprived herself. In addition, she outlined that it might be difficult to rely on cash only, especially when something unexpected occurs. Nevertheless, she affirms that the experiment was extremely effective at teaching her the value of money and would recommend keeping a card for emergencies only.   
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