Recent trends have shown that debit cards may be starting to become more fashionable, and perhaps favored over credit cards.
The first time I got a real debit card (and not an ATM card) was in college. The bank had some kind of deal with the university to offer students a fee-free checking account, and this was what everyone signed up for, me included.
I was used to taking money out of an ATM (or “MAC machine“, as those in Philadelphia used to call it) and spending cash, so being able to spend my cash without actually having cash was very convenient.
This seems quaint now. These days, more transactions are handled by credit card than with a debit card. The days of spending money you have have now been replaced by spending money that you hope to have in the future.
But perhaps not. A recent article shows that more people may be turning back to the debit card for their spending.
I sure hope so.
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Debit card vs. credit card spending
Get this: according to Clearly Payments, the average monthly spend on a debit card is $1,600, while the average monthly spend on a credit card is $3,500. Now, there could be a lot of factors behind this, not least of which is people with differing income levels spending in different ways.
But what isn’t in doubt is that people spend more money when they use credit cards. I’ve found differing statistics for this over the years; this study from 2001 shows that some people admitted a willingness to pay more than twice as much when permitted to use a credit card.
I’m on a mission to get you to stop using your credit card for everyday spend. I’ve given plenty of reasons for this, but people generally push back and say some combination of “points!” or “I won’t get into trouble, I know better.”
But actually, it’s me that knows better. I’ve worked with clients who thought they would always pay their credit card off, only to get into a jam and not be able to pay their credit card off.
Debit card use on the rise?
This article in The Atlantic is titled “The Debit-Card Rebellion“. It notes that banks and other financial companies are starting to promote debit cards more actively:
New financial players such as Venmo are now offering debit cards, retrofitting them with reward programs and marketing them heavily…Broader economic conditions, including high interest rates, are likely part of the reason banks are promoting debit cards so heavily. (Banks profit when customers’ money is parked in a checking account, as it typically is among heavy debit users.)
Okay, so is this a top-down revolution? Not so fast, as the ever-trendy Gen Z has gotten on-board:
Gen Z in particular say they are nearly twice as likely to use debit as credit, according to the consultancy group EY…Young adults have watched federal student-loan debt more than double; one in six of them have a debt currently in collections. It’s no wonder so many seem hesitant about a product they may associate with debt.
I’m not Gen Z, but this seems a little suspect to me. The generation that’s so fond of Buy Now Pay Later is now embracing paying in (effectively) cash? Something doesn’t seem right. Perhaps this is survey bias, or people speaking how they wish they were rather than how they actually are.
Debit cards are cool
But hey, if people are finding out that debit card use is becoming cool, then I for one am not here to question it.
After all, you can’t get into credit card debt if you don’t use credit cards. And while I’m as much of a fan of travel points as the next person, if it causes you to spend more than you have and go into debt in the process, is it really worth it?
Debit cards keep you honest, with yourself as with anyone else. With a debit card, you can’t spend money that you don’t have. This means that it’s in your best interest to track your spending, which I believe is the single most powerful way to change your financial life. When you track, you spend differently, and you will make better choices.
(But don’t take my word for it. Maybe it’s time for a money reset.)
Protections for debit cards against theft and loss aren’t as different from credit cards as you might think. If you report an unauthorized transaction within two days, your maximum liability is $50.
And that’s the maximum. I know people feel anxious about using their debit card online, but they don’t need to be. My debit card was hacked not too long ago, and I paid nothing. I called my bank, and they reversed all of the charges immediately. It wasn’t even a hassle. I’d be surprised if it was any different for you.
Let’s ride this trend
People young and old are getting screwed by the financial systems that we have in place. College doesn’t pay, jobs are unstable, buying a house feels impossible, and retirement seems unachievable.
All the more reason to not make it ever harder on yourself. If you have a choice in what card you pick out of your wallet (and you usually do), why not choose the one that keeps you honest, protects you, and doesn’t put you into debt? You can get all of that with a debit card.
