The following is a post from staff writer Crystal from Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.
I came across this Yahoo Finance article, credit card fees transfer wealth to rich, study finds, that covers the results from a study by the Federal Reserve Bank of Boston.
As you may already know, most merchants increase their costs to cover the fees they pay when customers use credit cards. What you may not know is that lower income individuals are more likely to pay in cash, thereby they technically foot more of that bill. According to this study,
U.S. consumer finance data shows that people on a low income are less likely to have a credit card, and those who do, spend less a month on average, than higher earners. High-income consumers are also 20 percentage points more likely to receive credit card rewards — be they frequent flier miles, cash back or other enticements…After accounting for rewards paid by banks, households who earn more than $150,000 annually receive a subsidy of $756 on average every year, while the households earning $20,000 or less pay $23.
AsÂ I haveÂ written before, I am a rewards credit card user and my husband and I usually get more than $350 a year in cash back and gift cards. I may be cashing in with your $23. So, why am I not apologizing? Here are a few reasons off the top of my head:
1. I feel safer carrying easily cancelled credit cards than I do when I carry cash.Â As Daniel has written before, credit offers additional security.
2. My reward cards offer me benefits other than credit including longer warranties on electronics.
3. I don’t think that merchants would go back to pre-credit card prices even if I didn’t use a rewards card.
4. It’s easier to budget since I use credit card statements to input my spending data.Â It’s also a hugeÂ part of how I automate my finances.
5. Credit cards offer a grace period so we can get our ducks in a row before paying – very useful with our biweekly paychecks.
6. My husband and I spend less with cards than with cash because the record stares us in the face for the month. Cash seems to drip out of our wallets when we’re not looking.
7. Making $350 a year seems better to me than spending $23. ;-)
My husband also wants me to add for him that “it doesn’t make my wallet freaking ginormous”. :-)
Do you use credit cards or cash? Why or why not?