Norma Walton shares her thoughts on how our use of cash impacts our behaviours and how a change to our use of cash can assist us in saving more money.

1. The Cash Society
By Norma Walton
http://money.ca/you_and_your_money/norma-walton/

2. Table of Contents
Easy Credit………………………….……………………………………
Only $1,000 Down…………………………..……………………….
Business Growth…………………………………………..………….
Balancing Act……………………………………………………………
Smart Credit…………………………………………………………….
Today’s Lending Environment…………………………………..
Unwise Lending……………………………………………………….
Debit Cards………………………………………………………………
No Cash Canadians…………………………………………………..
A Salutary Exercise…………………………………………………..
Cash Bargains…………………………………………………………..
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4
5
6
7
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10
11
12
13

3. Easy Credit
• A dozen years ago one of my best friends was
dating a German fellow. When he first came to
Toronto, he commented to my girlfriend that the
people in Toronto appeared far richer than the
Germans.
“Why do you say that?” she asked.
“Well, everyone here seems to drive nice new
cars and that costs money.”
“Right, but you can lease a new car and drive it
off the lot after putting about $1,000 down.”
“What?? Why would the car dealer give you a
$50,000 car with only a payment of $1,000?”

4. Only $1,000 down
That concept was foreign to him. In Germany, if you drive a
nice car, you generally paid the full $50,000 for it. How many
nice cars would any of us be driving if we had to pay full price
for them up front?

5. Business Growth
Easy credit fosters business growth.
– Imagine how well the car dealers in town would
be doing if everyone who went to them had to pay
full price up front for the car they wanted.
– Many of them would go bankrupt.
– But credit has a downside.

6. Balancing Act
The objective with credit is to balance the ease of
obtaining a loan with intelligent lending practices and
adequate capital.
Without that balance, disastrous consequences can
arise as we saw with the collapse of Lehman Brothers
in 2008.

7. Smart Credit
• Applying the principal of balance to our personal lives is challenging.
• When my in-laws were young, there were no credit cards. If you wanted
something you saved for it. You did not get it until you had the money to pay full
price, then you fully owned it.
• Hence if you wanted to take a vacation, you saved up the money ahead of time.
• If you wanted to buy a trailer to tow behind your car, you saved up the full amount
ahead of time.
• The only exception back then were
mortgages, and most people of my in-laws’
generation hated the thought of debt.
• So did the bank managers, so the
percentage mortgages on offer were
conservative, never more than 65% loan to
value.

8. Today’s Lending Environment
• Nowadays, things are different.
• Canadian lenders typically permit you to
borrow up to 80% of the value of your home
in a mortgage.
• They also provide credit
cards to people they
shouldn’t.

9. Unwise Lending
I have recently seen an 85-year old
woman with Old Age Pension and
Guaranteed Income Supplement
as her only income being offered a
$13,000 credit card limit. That
person has no ability to repay the
debt. With lending practices that
loose, defaults are inevitable. The
business rationale is that the 98%
of people that will pay their credit
card debts will compensate for the
2% that won’t, and the banks will
continue to make money given the
20% to 30% interest rates being
charged.

10. Debit Cards
Over the past holiday season, debit
card companies paid for advertising to
demonstrate that if you pay for
Christmas purchases with a debit card
as opposed to a credit card, there is no
pain after Christmas. Another
suggestion is to set aside in cash what
you have to spend and stop buying
gifts when you are out of cash. These
are good ideas that take you halfway
there. The other half is having the
discipline to follow your plan.

11. No Cash Canadians
• The Canadian trend is clearly away from cash and to
debit and credit cards as the payment methods of
choice
• “I never have any cash on me” is a frequent refrain in
hockey rinks across the country
• Businesses that only take cash are severely limiting their
growth prospects

12. A Salutary Exercise
• It is likely an eye-opening
exercise personally to take a
month and only pay for
things with cash. See if that
causes you to change any of
your buying behaviours.
• You may find that it is far
harder to fork out $200 in
cash for a cut and colour or
for some clothing than it
ever was when you put
those purchases on debit or
credit.

13. Cash Bargains
• Cash is real
• Cash creates a direct
connection with the
bargain you are making
• And when cash is gone,
it is gone