Debit Cards vs Cash

If you want to read Andrew Leonard's blog entry about Visa's ad campaign today, and you're not a subscriber to Salon, then you'll have to sit through an ad for Visa to get there. It's possible that the ad will be so attractive to you that you'll decide to click on it rather than click through to Leonard's blog entry, in which case you'll never get to his criticism of the campaign:

Theoretically, using your debit card shouldn't be any different than using cash, at least insofar as the path to bankruptcy is paved. But one could also argue that acculturating consumers to using any kind of plastic in lieu of cash helps create a general atmosphere in which the act of purchasing something is too easy not to engage in.

Now there are any number grounds on which to attack a Visa ad campaign. But it seems to me that Visa really can't be blamed for creating "a general atmosphere" in which it's easy to spend money. That's part of the broader culture. Visa's just trying to say that if you're going to spend money, you might as well do it with a Visa debit card, rather than with cash. But Leonard doesn't like that message either:

Isn't cash also for people who might be striving for financial self-discipline? Couldn't cash be the tender of choice for the frugal avoider of finance charges and late fees?

He's answered, in the comments, by Shannon:

Debit cards, used in conjunction with digital balances from my bank (downloaded off the website and uploaded into a spreadsheet) made me far more financially responsible than I am now that I'm "cash only".
Example: how much did you spend on lunches at work last week? Last month? Last year?
With cash, or a combination of cash'n'cards, is there any way you would ever know beyond a guesstimate?
Is it any wonder, then, that people have no idea how to budget and less idea of how to stick to one even if they do?
The thing is, a decade ago when I worked in a society that accepts debit cards just about everywhere (Australia) I could tell you exactly how much I was spending on lunches at work. And movie tickets. And impulse purchases. And everything else.
And I was able to modify my behavior to meet changing budgetary needs.
Nowadays I live and work in China, probably the closest thing to a cash-only society married to hyper consumption that exists on earth.
And my wages (cash -- nice red 100 yuan notes in a big stack) sometimes last the month. And sometimes they don't. And I've really no clue why or how or what or when.
Give me debit cards any day of the week, and twice on Saturdays when I'm out shopping on a budget!

Besides, if you're going to be paying for things in cash, you should take out $1,200 from the ATM each time you visit, according to Greg Mankiw. And carrying an average of $600 in your wallet at any one time is not going to impart a huge amount of financial self-discipline.

Ultimately, it comes down to costs. If you're a cash person, and you run out of cash, then there's a good chance you're going to have to refill at some bank which will charge you a fee for your cash witdrawal. What's more, the total amount of time you spend waiting in line at ATMs and otherwise going out of your way to withdraw money has some kind of value.

On the other hand, if you're a debit-card person, there is a chance that you will get whacked with the occasional unexpected overdraft fee if your bank balance occasionally nears zero. And you might also end up buying the occasional item which you would not have bought if you'd run out of cash.

Overall, for people whose checking accounts are always at least a little bit in positive territory, I reckon that debit cards are a perfectly good idea. Those ATM fees really do add up.