Being equipped with a fully functioning wallet in your phone is a lifesaver in the fast-pace of modern society, but new research confirms that the ease of digital payments could actually be doing significant damage to your spending habits.
The Consumer Owned Banking Association (COBA) is urging people to be aware of the danger that these easy payment methods can have, especially those who are financially at-risk.
What are the dangers of digital payments?
We aren’t talking about scams or credit card fraud (although we’d definitely stay alert!) – this is a different kind of danger, the kind where spending is simply too easy.
The growing popularity of mobile payments and the increasing in-store acceptance of Buy Now Pay Later apps makes it effortless to access any kind of payment at the touch of a button (and sometimes not even that). This is often a great thing, as buying your morning coffee can be as simple as tapping your watch against the terminal, and forgetting your wallet at home is no longer the end of the world.
However, there are some downsides when it comes to that ease of payment. COBA’s most recent study has found that while 77% of shoppers opt for cashless payments, people who do so are far more likely to be experiencing financial struggles.
More people amidst financial difficulty were likely to tap and pay as opposed to those in secure financial situations (44% to 35%), finding it harder to keep track of spending. The study also found that people in financial trouble were resorting to using BNPL services (with 29% of surveyed users reporting financial stress).
Buy now, pay later resources were also more frequently used by younger spenders, which can now impact their credit scores for years to come.
How can I stay safe from digital payment temptation?
There’s nothing inherently wrong with BNPL or tap and go digital payments if you’re using them sensibly and sticking to a budget. The ability to separate a digital payment from the idea of real, tangible money makes that a little harder.
Thankfully, while digital payments can create a problem by disconnecting you from the reality of the cash you’re spending, they can also be a part of their own solution.
One way to cut back on everyday spending is to explore the features offered by your bank or credit card provider to see if there are options to impose limits on spending. Some banking apps, like Commonwealth Bank’s, will allow you to set a daily spending limit (excluding scheduled payments and BPAY bills) to prevent spending outside of a budget.
A lower credit limit is also likely to steer you away from deep debt traps. By not allowing you to over-extend your borrowing, a lower credit limit is more likely to keep you on top of repayments. These cards are also likely to have lower fees and lower rates, so it’s a bonus all round.
You could also switch over to the good old debit card. While these might seem a little no-frills in their features, having a card tied directly to the money in your account makes things feel directly consequential. No more dealing with the consequences later – that money is leaving your account directly! You’ll also get all the ease of a credit card, although make sure you read up on your specific card to figure out the details, most are enabled for mobile wallets, tap payments, and online spending.
If it’s still not cutting it, you might want to go old school. Society might feel mostly cashless, but spending in cash could help you feel the immediate effect of your money leaving your wallet. Just make sure not to overdo it on the cash advances if it’s coming out of your credit card, or you could get served some hefty charges.
If you are experiencing any financial hardship, from minor stress to major difficulties, take a look at some of the ways forward. For some digital payments that stand out, read up on Mozo’s best credit cards.
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