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Dave Ramsey says: Dave says: Save money by using cash

Published: Friday, July 3 2015 11:14 p.m. MDT

A customer, right, hands over his credit card to purchase Wii video game console at the Nintendo World store in New York\'s Rockefeller Center, Thursday morning, June 21, 2007.  (Associated Press) A customer, right, hands over his credit card to purchase Wii video game console at the Nintendo World store in New York\'s Rockefeller Center, Thursday morning, June 21, 2007. (Associated Press)

Dear Dave,

Iíve heard you say that people spend more with plastic than with cash. Exactly what does that mean? — Edmund

Dear Edmund,

There have been several studies done in recent years that show people spend less money when buying with cash as opposed to swiping a credit card. One study in particular conducted by MIT and published in Carnegie Mellon magazine, indicated through the use of Magnetic Resonance Imaging (MRI) that the pain centers of the brain are activated when you spend cash. Of course, it depends on the item in question and individual spending patterns as to exactly how much less is spent, but the average is between 12 and 18 percent.

Want some more information? When McDonaldís first began accepting credit cards they conducted a focus group study in their restaurants on credit card users versus cash users. At that time, the difference was about 42 percent, meaning that a person using cash bought 42 percent less in a fast food setting than someone paying for their meal with a credit card. On other, more expensive items, the percentage generally drops. But these studies and others have proven that people spend more when using credit cards instead of cold, hard cash.

See what I mean when I say you canít beat the credit shark at his own game? Even if youíre one of the few who pays their credit card bills on time every month, youíre still throwing your money away! — Dave

Dear Dave,

My dad cosigned on a car loan for me a few years ago before I began working your plan to get control of my money. I missed some payments back then, and it has affected our relationship. Iíve since paid off the car, but how do I make things right with my dad? — Stephanie

Dear Stephanie,

I know youíre hurting, but a lot of this is up to him. The truth is heís partially to blame for being dumb enough to cosign in the first place. And if this was just a mistake you made when you were a kid, then he should be mature enough to realize that and recognize the progress youíre making now with your finances. If you havenít yet apologized for messing up, I think itís something you should do very soon. Let him know how much you hate that it harmed your relationship, and tell him youíre following a program that will help you make sure nothing like that ever happens again.

Then, if he canít accept that and move on, itís all on him. I know thatís not what you wanted to hear, but sometimes time is the only thing that heals those kinds of wounds. — Dave

For more financial advice please visit daveramsey.com.

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