Do Debit Cards Encourage People to Save Money?
Bank account holders who use debit cards are more likely to save money than those who do not use debit cards, according to a new study from the National Bureau of Economic Research. Having a debit card makes it easier for people to monitor their accounts, which ultimately improves their trust in the financial industry.
The survey was based in Mexico, and took place over a four-year span. It involved more than 340,000 accounts for people receiving government assistance from Prospera, also known as Oportunidades.
Before Prospera issued debit cards for direct deposits, researchers found most people would completely withdraw their monthly earnings. Once they received debit cards, cardholders increased their savings in less than a year. After one or two years of using the card, recipients saved 3-5% more of their income than they did before using the cards.
For the first year after getting a debit card, there was an increase in the amount of times people checked their balances throughout the month. Users began keeping a closer eye on their money, and felt more at-ease knowing it was still in the bank. Instead of withdrawing all their money as cash and spending it, they were able to keep some funds in their accounts each month.
This mentality goes against some budgeting tips, which suggest that spending cash makes a person more inclined to save. This is because cash requires a physical transaction – you have to count the money and hand it over to someone. The survey suggests that people may be getting past the “swipe and go” mentality associated with card transactions, and that could lead to improved financial situations in the future.