Pros & Cons of Paper Money

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An overhead view of a cash tip on a bill tray in a cafe.
An overhead view of a cash tip on a bill tray in a cafe. (Image: Jupiterimages/Stockbyte/Getty Images)

Although paper money might seem inconvenient in the modern world, keeping a few bucks in your wallet can be useful. When using paper money, you become more aware of your spending habits and can mitigate the risk of identity theft, which is associated with debit and credit cards. At the same time, it's important to remember that paper money can easily be stolen and hard to track once it’s spent.

Fewer Transactions

If you draw $100 out of your bank account and spend it, the money is gone and you can’t keep spending. The same can’t be said of credit cards, which you can keep swiping until you’ve run up a hefty bill and interest charges. You are more likely to stick to your budget if you realize you’ve spent everything you’ve allotted for discretionary spending. With plastic, it’s easy to lose track. Paper money also can be given freely and exchanged for goods and services, while credit and debit cards can be declined for various reasons. If you stick to cash, you can’t max out your credit card and get declined.

Better ID Protection

Paper money is an attractive alternative to electronic or point-of-sale credit card transactions. Once money is spent, or even if it’s stolen, it cannot be traced back to you and your identity is safe. Credit card and debit card statements, on the other hand, have personal information that can be stolen. Someone with access to your credit card account, for instance, can get your birthdate, Social Security number or other personal information that allows your identity to be stolen.

Higher Risk of Theft

Cash kept in your home, wallet or elsewhere is prone to theft. Paper money is hard, if not impossible, to trace, making it difficult to recover your funds once they’re taken. With a credit card or debit card, you can place a hold on your account if the cards are stolen. You can also track how your funds are spent by the thief and get an idea of where the thief has gone. The potential and permanent misappropriation of cash is a major drawback of using paper money.

Less Tracking

It’s hard to track where you’ve spent your money unless you’re carrying around a notepad to record every purchase you make. For this reason, it can be hard to optimize your spending habits and manage your money when you're using cash. With credit cards and debit cards, you get detailed statements about where and when you’ve spent your money, making it easier to analyze how you might be living beyond your means.

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