It’s All About Financial Responsibility

Tim Jones wrote a rebuttal to my last credit card post. I figure I would write a rebuttal to his rebuttal. I always welcome other people’s thought since there really isn’t a right or wrong answer to this question. What is right for me maybe wrong for you.

In his rebuttal, Tim made the argument that people with credit and debit cards spend an average of 12-15% more than people with who use cash only. First of all, a debit card is the same as cash so the studies are flaw from the get go. As for the higher spending, people with credit cards have higher income than people who don’t, so ya, they would spend more money. Time then ask this question:

Take out a $100 bill and take out your credit card. Lay them both on the counter for your next purchase. See which one hurts more to spend — you don’t need a fancy study to know which one is harder to spend.

For me, the cash would be harder to spend but it’s not for the reason Tim thinks. The $100 bill would be harder because I would feel ripped off because I’m not getting any reward points or cash back from it. To me, the $100 bill or credit card are one and the same because I am not emotional about money – it’s nothing more than a a way of keeping score.

Living On Cash Is Dangerous

Another thing Tim didn’t factor in is the danger of living on cash. I charged over $140,000 last year to my Visa card, plus all my cash purchases. If we assume that the average person living on cash carries one week of spending, that would mean I’ll be carrying over $3,000 of cash on me at any one time. Let’s forget about the danger this creates for a minute and look at the following question; which do you think would create more impulsive spending: having $3,000 of flash money in your pocket or a Visa card?

Technically, I don’t really live on credit. There has never been a time when I charged for something and didn’t have enough funds in the bank to cover it. If you have $1,000 in the bank but charged a $2,000 purchase, you’re living on credit. Since I charge for everything, I can’t say I’m living on cash. So what I am doing? I’m living within my means. If you don’t live with in your means, it doesn’t matter if you live on cash or credit.

It’s All About Financial Responsibility

The media and blogs like Tim’s make it sound like most people can’t handle their credit card debt when in fact, 50% of all credit card users pay their balances off in full every month. The other 50% that run a balance pay for the all the perks for the 50% who paid off their balances. I really don’t have a problem with this because I know that in order to enjoy my perks, someone had to be a dumb ass with a Visa. And it’s really your choice as to which half you belong to.

Too many people blame their financial problems on outside factors when in truth, the problem is staring right back at them in the mirror. It’s not the credit card that got you into debt, it’s you. No one held a gun to your head and forced you to apply for a Visa. No one forced you to charge that new 50″ plasma screen on it. In the end, it’s all about financial responsibility. If you can’t be financially responsible with your money. If you can’t control your spending. If you can’t live within your means. Then it doesn’t matter if you live on cash or credit. You’re screwed either way.


55 thoughts on “It’s All About Financial Responsibility”

  1. Blaming credit cards for debt is like blaming the bullet when someone gets shot. A person had to pull the trigger.

    1. Michael Kwan says:

      Well said, Jason.

      I’m tired of all these people blaming banks and credit cards for their debt and financial woes. If you don’t have the cash available to buy that new laptop, you shouldn’t put it on your credit card and “worry about it at the end of the month.”

      1. Eric "Shuck" says:

        I agree 100%. I work in the High Risk lending industry and I talk to customer everyday that spend WAY more than they can afford!
        Some of our customers may less than I do and have more bills than I do! It’s ridiculous.

        According to the statement john made in this post
        “As for the higher spending, people with credit cards have higher income than people who don’t, so ya, they would spend more money”
        I disagree with that, I think there are more ppl that don’t have a high income that have lots of credit cards. They are the ones spending with the intention of paying the min.

      2. Rajbir D says:

        A lot of people do that, I even know a few. They go on shopping sprees, putting everything on credit… and then comes the end of the month.

    2. SEO Tips says:

      Excellent reply Jason. I totally agree with you there.

      Its fair enough to say that Credit Card companies entice people to spend more but it wouldn’t be a very good company if they didn’t do that, they wouldnt make as much profit.

      1. You pick the perfect example to describe it. Credit card is helpful to you if you will use them wisely and pay your bills on time. You should be caring about credit card as much as you are caring for your hard cash as well.

        Certainly you do not have to pay at the time of swapping but after one month you will get your statement and you will have to pay.

        If you are not able to plan for your bills than I think you should not use anything.

    3. Well said – I like that line!!

  2. Sire says:

    OK, I left a comment on his post and now I will leave on on yours. You are wrong in surmising that only people with money have credit cards, “people with credit cards have higher income than people who don’t”, that couldn’t be further from the truth which is shown by the amount of people struggling with credit card debt. Also, you don’t need to carry cash, you could write out a check, although this can be a hassle at times.

    Somehow I don’t think you will convince Tim, or that he will convince you. Get ready for a tennis match of rebuttals 😀

    1. John Chow says:

      People with credit cards do make more money than people who don’t have cards. Show me the study that states otherwise. It’s just like men make more money than women. Of course you can always find an exception but on average, this is how it is.

      And again, who are all these people struggling with credit card debt? I don’t know any! I guess it’s really true – bird of a feather really flock together.

      1. Sire says:

        Well apparently in the US, you guys had a whopping $790 billion credit card debt in Feb of 2008, I reckon that it may even be worse now.

        1. Sire says:

          Sorry John, I didn’t realize you were Canadian. Perhaps this article is more relevant as it show that Canadians have their own problems with credit card debt.

        2. John Chow says:

          I am not surprised that debt is going up. I helped it by charging more in 2008 than I did in 2007. But I still pay the bills off every month and 50% of the people who have credit cards do the same thing. You just don’t hear about them in the news because it doesn’t sell.

          1. Sire says:

            Could you please supply a link to your source to substantiate the 50% figure you are quoting, as I may be able to use that on my business technology blog.

          2. John Chow says:

            Sure! http://www.theepochtimes.com/n2/canada/plastic-nation-canada-credit-card-debt-6072.html

            “Like Grass, roughly 50 per cent of Canadians are unable to pay off their credit cards every month according to Credit Canada, a non-profit agency that provides free credit counselling.”

            The US is even better than Canada. http://www.parade.com/articles/editions/2008/edition_08-10-2008/2Credit_Cards

            “Paying off your bills in full every month—as 60% of U.S. consumers always or usually do—doesn’t endear you to the credit-card companies. Once, lenders sought such customers. Today, credit-card companies call them “deadbeats,” because they make the least money off them.”

            It is a complete and total myth that most people can’t pay off their credit card balance very month. In the US 60% pay it off every month!

            I think this calls for another blog post.

          3. Sire says:

            Thanks for that John, I’ll keep those links handy for when I do that post. Still, when you think about it, 50% not paying off their bills is still a pretty large number but I suppose it’s their lack of budgeting skill that make it possible for us to cash in on those incentives the credit card companies use to rope in the unwary.

    2. Michael Kwan says:

      In general, people with credit cards make more money than those who don’t. That’s because people with low income have a harder time getting approved for credit cards. The credit card debt has very little to do with the credit card itself; it has to do with the person spending more than they can afford. The higher the limit on the card, the more they may be likely to spend and, with a lack of financial responsibility, the more likely they won’t be able to pay off the balance on time.

      1. SEO Tips says:

        Excellent point. I was going to talk about this too but you pretty much cleared it up.

        John says that in most cases people with credit cards make more money than those without them, although that might be true and it probably has something to do with credit rating as Michael said.

        Its these people with “more money” that are able to rack up the debt and not be able to pay it back. So if we keep to saying most people with credit cards have more money they might have more money but they don’t know how to look after it.

        1. John Chow says:

          It doesn’t really matter how much money you make, you can broke at any level.

      2. Sire says:

        I disagree with that. the reason we are in such a predicament financially world wide is because it was way too easy to get loan and credit approval. The banks were virtually throwing money away at people who could never afford to pay it back and now the world is in an economic crisis.

  3. joe gelb says:

    very good post but my rebuttal is that we should all live on blog income money, that way we are all millionairs, or in my case .01 cent airs

    1. SEO Tips says:

      Sounds good to me 😀

  4. Free Ads says:

    It is always better to use credit cards if you have financial discipline and you are able to pay the full amount before the bill is due. I will never use cash unless it is absolutely needed, for example for cab ride.

    I even borrow money on those 0% interest for one year and put it in 4-5% (now it 3.5%) savings. Even after paying $75 to $100 for the cash advance fee, if I borrow 20,000 for one year, I will make $600 pre-tax in one year on that borrowed money. The cash advance fee can be reported as investment expense. When the interest rate was high, I used to get 5% return and at one time I borrowed more than $100,000 from a few high credit limit cards. The trick is to borrow in large amount, more than $20,000 from each card. My FICO score went down but it came back within a few months of paying off the debts. Always use other people’s money. Using credit cards is like using other people’s money. But one must be very disciplined and have sufficient incomes to cover all the purchases in full before the bill is due.

  5. Credit cards are better, but in the wrong hands could be dangerous, you dont feel the pain of leaving a $100 dlls bill and may spend more than you really want it. Kike you said John its all about of Financial Responsability.

    1. SEO Tips says:

      I don’t believe they are better it just totally depends on the individual, personally I would rather deal with money just because its easier for me to see my outgoings then. However others would rather use credit cards, perhaps so they dont have to carry money on them what I say to that is “debit card darlin, debit card”

  6. Vik Dulat says:

    Great point John. Tim Jones has it all wrong. He can think what he wants but I totally agree with you.

  7. John, I do agree with you, everyone must be financially responsible. However, when someone on credit card debt, that doesn’t mean they are financially irresponsible. In some countries (third world countries), some people (I know a few) barely earn enough to maintain a minimum living standard. The money that they earned is spent on rental, mortgages, foods and kid’s educations. If there is an emergency (like health problem) that require medical treatment, the only payment option they have is credit card! No everyone can afford to put aside some money for emergency use. When credit card is charged, they have no option but to serve monthly minimum payment.

    It is easy to talk about financial responsibility when we are wealthy or you have high earned salary, but it is not fair for those who are earn decent salary but has a lot more family commitment to fulfill.

    Bob Goh

    1. The Moneyac says:

      Imagine the world if everyone would be financially responsible. Imagine how many businesses would run out if everyone would be responsible. There won’t be no sheep anymore…

      Cheers.

    2. Michael Zhao says:

      Is this guy kidding!? John is not talking about developing countries or newly industrialized country that have credit card problems! That would be the least of their worries! John is talking about the people that live in countries that are developed, like; U.S., Canada, Australia, and Europe.

      This is a topic more of personal responsibilities.
      People that live in developed countries have options, unlike second or third world countries. They have the option to go to school, get a job, even at Mc Donalds or Pizza-Hut. So if the person is not making enough, it is not any ones fault except his or hers. So if people cannot afford something. Don’t buy it!

      Only buy what you NEED! Shelter, clothes, food, medical insurance are some of the basic things a human needs. If a family of four in a third world country can survive off of 30 US dollars a month, so can lazy and irresponsible people!

      In the U.S., public school is free, even lunch, until grade 12, and after high-school, college is almost free, with financial-aid. And with all that support and help, most people still don’t take advantage of it. And don’t blame public schools that they can’t teach, some kid that came from public schools graduate with 4.0 GPAs. Some of those kids come from high schools from cities like: Compton, Englewood, Long-Beach, South-Central, etc…

      So quit making excuses for lazy people. It is all about personal responsibility, generally speaking; if a person can’t afford kids, then don’t have kids to begin with!
      And don’t try to cover for the people that say having kids is an accident either! Because it’s NOT! Having kids without protection is a plan to have kids; what do you think happens when two people of the opposite sex have sex with no form of protection!? There are at least 12 forms of birth control. And if you live in the states, and you’re poor, it’s free!

      People do not need to be wealthy and rich to talk about financial responsibilities. When my parents came here from China, they didn’t speak a word of English. First job my father took back in ’83, that’s when I came to the states when I was 3, he took a dish washing job in a Chinese restaurant, and making barley 350 a week! I remember us living in a barber shops restroom. One twin size bed and all three of us, my mother, father, and me, slept there.I remember us eating sardines in tomato sauce and white bread for lunch and dinner. And now, they own their own mini mart business! How, you might ask, well, they saved and planned like responsible people, and, like John mentioned, “They lived within their means”.

      So don’t make excuses for the lazy and irresponsible people that complain and nag about their life; especially if they live in developed countries like the ones we are lucky enough to live in. Do something about it! Don’t blame credit cards! Blame yourself!

      fatsotomuscles…coming soon…

      1. as I said, it is always easy to talk (talk is always cheap!) about financial responsibility until you put yourself into those people with credit card debts. No doubt that most of the people with credit card debts are financially irresponsible, but there are exceptions (Yes! even in developed country). I was just trying to give everyone a view from a different perspective.

        If everything can be planned out, then there will no poverty, no accidents, and there is no need for insurance companies, etc, etc.

        1. Michael Zhao says:

          Did you even comprehend what I wrote!? Get lost, I’m done with idiots like yourself.

  8. John Cente says:

    You have to be responsible of course but that doesn’t mean that credit cards are bad. For example I’ve managed o use around 1000 dollars from a credit card only by paying some insignificant commission and no interest at all. It’s quite a starter.

  9. Financial responsibility is the only answer and it has absolutely nothing to do with how much money you make! Obviously, the more you make the more you are capable of spending. The only difference across “social” lines is the limits are different.

  10. Hey Bob, I do agree with you. Some people I know here in Asia earn a small amount of money — but are given credit cards. So whenever there are emergencies, they have no option but to use it, resulting in debt.

    There are also people I know who earns a small amount of money but drives fancy cars, buys the latest gadgets, goes to shopping as if there is no limit! Resulting also in credit card debt.

    So I think financial responsibility is still important. Using debt for real emergencies is reasonable and understandable but using it for perks–things you can live without— is just foolish.

  11. Bobbi says:

    I agree with both of you, credit is nice to have, still the cost is there to have that said credit card for the interest and/or yearly charge. Granted its a perk to be able to carry a card instead of cash when you go out. When you said your spending would come out to be $3000 a week, that wouldn’t mean you would carry that amount around with you daily. I have carried cash up to 1000 in my pocket. I do not have a credit card, I have debit cards/same as cash. Still you can use these said cards like a credit purchase, still works with the actual balance you have in your account.

    I am a person that works with cash instead of credit. I control my spending that way, it is to easy just to pull out that card and say “charge it” and worry later how your going to pay it. That is the mentality of many that fail with credit cards.

    When my financial means requires to have credit I will indeed get a card, only for the purpose of what it was meant to be used for. Being a cash carrying person that balance would be paid as soon as possible. Meaning, if I purchased something with a credit card so I didn’t have to carry a large amount of cash I would then come home and pay that balance to the card company the same day, expense covered.

    What it boils down to, is who has control of your spending habits, you the consumer, or the cards you hold? Its up to you who you want to control what you do.

    Good article, Good debate
    Bobbi

  12. Ben Pei says:

    Well I guess not everyone can live on credit! How about those can’t control their spendings?

  13. both sides are valid and its simply up to the individual to assess what side it better for them. Personally, I charge everything on plastic from a small coffee, to expensive flights and everything in between. Its better that I get the cashback from using that card AND the cash back I get from buying things from my card websites. If you look my my post today as an example, I talked about how to get Valentines day purchases done with discounts…Visa/Mastercard/AXP – they all give even bigger discounts for using their card from their shopping sites. Its crazy to think how much MORE I would spend by paying cash, by not having those funds in my account for an additional 30days where I can either invest it in a small interest account or play a trade on the market. I always have the money to pay my balance in full and never go outside my limit too much, its all about self-control.

    Talking about how some find it hard to spend a $100 bill instead of putting it on the card is true. But then again, why its hard varies from person to person. If you have any frugal skills, any thought that you want to save more of your money and take the time to find a few ways to save a couple of extra dollars, then plastic is the way to go. Some might say that 2% cashback is not worth the hassle of finding a good credit card, well like I say on my blog once in a while, send me 2% of your annual spending each year if its not that important to you.

    As cliche as it is, a penny saved is a penny earned – and I will take that any day.

  14. Erik Chmura says:

    Yup! Credit is everything !!!!!!! Article goes good with your get into debt article. You can use your debt extension you would get after they see you spent 100,000 last year and paid off every single penny…….you get higher lines of credit from all bankers and sooner or later you extend yourself as much as possible ( rationally of course) and buy up all these assets in this recession “Depression” we are having!

  15. yes you are more likely to spend the cash.If you get a credit card with say a 12 month introductory interest free period,pay the minimum balance each month,put the equivalent you have spent in an interest earning account,then pay off the debt at the end of the twelve months.

    That way the interest you earned came free.

  16. Marita says:

    I agree with John. Another reason NOT to spend the $100 cash: if you’re doing any kind of budgeting and you spend $100 cash, you now have to save the receipt and write it down somewhere on your budgeting sheet.

    If you put it on a credit card, your statement will automatically categorize your purchases and you can see your spending habits at a glance. And the points or cash back are a great deal! On one credit card I get points instead of cash, because 25000 points get me a night at a $700 a night luxury resort on the beach. If I took the cash I’d only get $250 for the same amount spent.

    Credit cards are a great deal if you use them the right way.

  17. While, I lean more towards Tim’s views and points. I can see your valid points Mr. Chow. Though, one thought must be that John Chow is not your average Joe or American…one he is a Canadian. Second, he has a lot of money, his net worth is probably well over a million dollars if not several million. With this stated, this is a completely different picture for the fake rich. Say someone that acts like his a millionaire, but really is head deep into debt. That’s right he drives the fancy car he does not own, to continue to spend money that he does not have on a credit card…all to impress what friends that he really does not like. Sadly enough that’s the picture of most average joe in America right now!

  18. This debate will continue on and on as everyone has their own opinions, which by the way, are probably due to something that happened to them or someone they know when dealing with cash or credit.

    To me, and most from what I’ve seen, it all comes down to responsibility and transfer of blame. WE are responsible for everything that we do and far too many people forget or conveniently forget about that fact.

    If you’re responsible with credit, there’s some great rewards, if you’re not, I think you know what to do.

  19. Melody says:

    Debit cards really aren’t like cash. A lot of people use debit cards when they don’t have cash on them. You can have several thousands of dollars on a debit card, but you’re not going to carry that around with you in cash every day.

    I think you should consider that people feel that way about spending because not everyone makes more than $10,000-30,000 dollars a month (if that in these times). They could be working “harder” putting in more hours, but that doesn’t keep large corporations from giving people minimum wage paychecks..

    Someone’s got to serve you at the drive-thru window right?

  20. reflux dm says:

    I am agree with you, all depend on situation…..sometime cash more easy

  21. Reyn Aria says:

    I agree 100% with you. Be it cash or credit card, if you suck at handling money, it will soon go dry no mater what. If you are drowning, don’t blame the water but blame yourself for not having learned how to swim.

    1. Michael Zhao says:

      Exactly! If you jump in the water, don’t blame the water, blame yourself! You said it man!

  22. 26 says:

    Love your comments about financial responsibility.

    Everyone wants to place the blame on someone/something else.

  23. DBE KING says:

    credit vs. cash!

    I say we have a big event and the cash and credit can battle it out in a ring!

  24. Tran Harry says:

    I must say that while debit cards are directly linked to your checking account, they are not essentially the same as cash. With cash you know exactly how much money is in your wallet and it is visual. With debit cards you can only assume the amounts in your checking account based on whether your direct deposit is in yet or not, whether or not someone else cashed a check you wrote, and if you just don’t balance your accounts once or twice weekly, that means you’re guestimating the amount of money in your accounts.

    Debit cards create a visual impairment much like alcohol, where the individual doesn’t assume the charge they are creating is a big factor in their financial expenditures.

    Also the fact that $100 spent on cash and $100 spent in debit are all relative.

    If you only had $200 in your wallet and wanted to purchase something $100 after tax, than you’re going to feel an immediate 50% drop in spending power. Whereas if you assume your checking account has $1,000 in it at the time of the charge, than spending $100 would only lower your spending power by 10%. Usually people don’t compare their overall worth, only the relative worth, thus cash makes you think twice when it comes to spending on wants.

    I am not advocating that cash is any better or any worst, because I believe ultimately in financial responsibility. Whatever you gain from cash back programs can easily be lost due to poor financial control.

  25. Chris says:

    I disagree that people with credit cards have higher income. Many people in the lower income brackets stock up on credit cards just to pay bills and keep transferring balances from one card to the next. It’s all about being responsible – whether you’re using a credit card or cash.

  26. Silvia says:

    Sure the credit card is not a sign of wealth. All the students now have the credit cards,they stand for them because it is more convenient for them to use a card than a wallet,the degree of their responsibility and the everyday situatiation in which they live prove it.

  27. This credit card vs cash dispute is unsolvable. It all depends on a person and a situation. But I agree about the financial responsibility.

  28. Vanessa says:

    Credit cards are not money. To compare the two is like comparing organic seed to hybrid seed. One reproduces the other is sterile. No one gets paid in credit cards. You get paid in cash converted to a payroll check, etc.

    It’s only because of a massive campaign to market credit as being viable and selling it to college students that it became accepted in the first place.

    Then the fear campaign that credit is better because money can be stolen, lost etc.Well, how about identity theft and the crime spree credit has created?

    Credit represents a bankrupt world. If higher income consumers do use credit cards more it’s because they have to go out and make more money to afford them. By higher income does that include certain criminals who make 6 digit incomes too? Or people who have never worked a day in their lives?

    Financial responsibility has nothing to do with credit cards or cash. It has to do with wisdom which can only be learned as you live life and passed down to the next generation.

    John why do you think they give away rewards and cash for using your credit cards? Isn’t it obvious? They couldn’t sell credit unless they lured and marketed it to death and used social psychology to convince the public it makes sense. It doesn’t.

    Finally it wouldn’t matter if you preferred cash or credit. Credit is the new money because it was voted so by the using public and being pushed by credit card companies, the Government and business.

    In a very few years when the entire world is digital, cash and coins will be extinct altogether and you won’t have to promote it ever again. In fact there will be no choice involved. You’ll use credit because they say so. After all they will have control which they could not have attained with cash.

    Oh and just in case you think cash is better. They don’t print more credit cards at the U.S. Mint. They print money.

  29. If you were savvy enough to find a credit card that offers a benefit program that directly complements your business needs, you will likely find that those benefit rewards do make a difference. Whether your business has been saving thousands of dollars on travel fees, or enjoying straight up, cash back rewards, a rewards program really can make a difference in your financials each month, provided you have a thorough understanding of how the program works.

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