Here’s why using your debit card can help you save money

Debit may even be better than cash...

This will take some of the guilt out of swiping your card at checkout—or inserting your chip (which isn’t nearly as dramatic). But only if you’re using your debit card! A study based in Mexico finds making purchases with a debit card can actually help you save money in the long run.

The National Bureau of Economic Research monitored more than 340,000 bank accounts in Mexico for about four years. Those under the microscope were already part of a government social assistance program. The bureau wanted to find out what would happen if the government provided money via a debit card versus depositing the money into a savings account.

Before you see the findings, you first need to understand that trust in Mexican banks is low due to a history of high-profile scandals. Prior to the change, people in this program were more likely to empty their savings accounts every time money was deposited.

The use of debit cards, however, drastically changed the habits of those involved in the program:

  • Beneficiaries started to increase savings nine to 12 months later.
  • Frequent monitoring of debit card balances decreased over time.
  • Trust in the banking system improved.
  • The savings rate increased 3 to 5 percent.

What does this study tell the rest of us? Debit cards overall help consumers build better habits as compared to credit cards or cash spending. Debit cards are the much better option for people who can’t afford to pay off credit card debt in full each month. They also force shoppers to limit spending to what is available right now.

There are benefits to credit cards as well though:

  1. If payments are made on time, they’re great for starting your credit history.
  2. They enable you to earn awards and airline miles.
  3. You receive better purchase protections and warranties for big purchases.

The downsides include high interest rates, numerous fees and limited access to quick cash.

Whichever form of plastic you decide to use, you want to save enough money for an emergency fund. Some experts suggest stockpiling about six months’ worth of expenses. Others say 10-15 percent of your take-home pay should be put into savings.

For more money inspiration, check out these 10 good spending habits that will help you spend less and start saving!

Latest Stories

Advertisement