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Canadian 5 year bond yields markets +.03 to 1.89. The spread (obtained by subtracting the bond yield above from the industry average 5 yr rate published mortgage rate of 3.79) is centred within the profit range at 1.90. If the increase in bond yield continues upward, the spread shrinks, which could prompt interest rates to rise. The range for investor desired profitability is currently a bit lower than in the past, more in the region of 1.80 and 2.00.
The end of cash, will it make spending zombies of us all?
Melissa Leong | 05/10/13 | Financial Post 04/10/13
An ad for Interac Flash features a talking wallet: “The paper money and worse yet, all those coins, are killing me,” the wallet says, spewing change. “I’m bursting at the seams and it’s embarrassing.”
While I’m not sure “embarrassing” is the right sentiment to describe having a wallet bulging with cash, it is definitely more convenient to pay with the mere touch of plastic.
We put everything on our credit cards now, a coffee, bus fare, lottery tickets, something we didn’t do decades ago. We overlook the fact that retailers pay transaction fees, which result in higher prices, and we shrug off research that shows we are more likely to buy and more likely to pay more when we use credit cards.
“Not only are we not using cash very often but we’re all broke from all of these simple ways to spend money,” says James Roberts, a marketing professor at Baylor University in Texas. Mr. Roberts authored Shiny Objects: Why we spend money we don’t have in search of happiness we can’t buy.
Cards make up 68% of all non-cash transactions in Canada, compared to the global average of about 40%, according to a 2011 Royal Bank of Scotland report.
And with the proliferation of PayPass, Flash and mobile transactions, consumers seek now to pay with the wave of their card or phone. Since 2005, Canadians have made more than 240 million transactions with their MasterCard PayPass — the highest of any country in the world. We love the convenience; however, the convenience comes with consequences.
Do we want to make it easier to spend our hard-earned money?
It might have taken an hour of work to earn $20; but it took a second for that $20 to leave your account. When the money is abstract — when it is a number on a screen — it’s easier to spend, researchers say.
Apparently, we want it to be easier. Seventy-one percent of Canadians are comfortable with never handling cash again (up from 27% in 2011), says a Leger Marketing survey for PayPal Canada. Almost three-in-ten women (28%) say they rarely or never withdraw cash (22% of men say the same), a 2012 RBC/Shoppers Drug Mart poll revealed.
Why would anyone want to use cash? Because it hurts.
Seeing a price tag stimulates part of the brain known as the insula, which is associated
with pain. But using credit cards anesthetizes this pain. We all fall along this continuum: from tightwad to spendthrift. But with credit, even the miserly become big spenders. This is why mode of payment is key.
The more attention you pay to the payment, the more it hurts, says Scott Rick, assistant professor of marketing at the University of Michigan, and one of the authors of the study Tightwads and Spendthrifts.
He references an experiment he did where people were shown a ticking money meter. It was more painful for people to watch the meter continuous tick up in small increments than it was to see it jump every so often even though it amounted to more money. “Tap and Go will further reduce the attention to money departing,” he says. “It’s going to focus people on: What do I want? What do I like?”
Average consumer debt, excluding mortgage, is more than $27,000 and Statistics Canada says that about one-third of retirees have debt. Just the mere sight of a credit card or a credit card logo prompts people to spend more, studies have shown. At fast-food restaurants, for example, we tend to spend 60% to 100% more when using credit, Mr. Roberts points out.
That being said, spending is good for the economy if it’s backed by higher incomes,
experts say. And the cashless system, being more efficient and involving less errors, is a win for merchants. (If every credit card transaction took an extra 30 seconds, the Canadian Bankers Association says, it would add 27 million hours of staff time every year.)
Credit card issuers are moving quickly to deploy more mobile terminals — PayPass and payWave, respectively — to merchants so that we can pay for things with our phones.
If I’m tapping and going, people just forget the expense
“In a few years, a mobile wallet will be as common as a camera on a smartphone,” David Robinson, vice-president of emerging business at Rogers, said in a statement.
Almost half of Canadians with smartphones would consider using their devices like credit cards to pay for everyday purchases, a 2012 CIBC poll suggested. CIBC and Rogers made the first mobile credit card payment in Canada last year in a Toronto Tim Hortons. RBC and Interac Association/Acxsys Corporation made the first mobile debit transaction via Mobile Interac Flash on a Blackberry in March of this year.
Rogers believes that by 2016, four-in-five devices will be equipped with NFC technology and total purchases will surge to $14.2-billion.
“I don’t think we consider what the ramifications are, and the ramifications of this thoughtless ‘tap and go’ is that we’re going to spend more money than we would if we had to think about it a little bit,” Mr. Roberts says.
“We have to count the money out if it’s cash. We have to sign the credit card receipt. It gave us time to reflect and it gave us time for a little bit of logic or self-restraint to come into the exchange.”
He suggests that consumers institute a cooling-off period for major transactions. Merchants want you to spontaneously buy, he adds, without reflection and without, more importantly, keeping track. The convenience of tapping your card or phone makes the experience of buying less memorable. It encourages unconscious spending, making us like spending zombies who mindlessly consume.
“If I’m tapping and going, people just forget the expense. If they remember it all, they remember the pretax and pre-surcharge prices and not the post,” says Dilip Soman, a professor of marketing at the University of Toronto, who studied consumer behaviour with tap and go technology.
“Unless something is done by intervention, we might end up in a situation where these payment [methods] further feed into impulsive behaviours. We can build in safeguards in the system. In my research, one of the things I find is that people forget how much they spend; but if you give them feedback by simply reminding them, people correct their behaviour.”
A number of financial apps help you do everything from track expenses, create budgets and alert you if you’ve spent too much in a certain category.
If you don’t believe that you can be trusted with your easy-to-spend money, set up an automatic savings account that withdraws your cash before you even miss it. That way, you will have nothing to be embarrassed about, overflowing wallet or not.