What Is Plastic Money?

Plastic money is a term that is used predominantly in reference to the hard plastic cards we use every day
in place of actual bank notes. They can come in many different forms such as cash cards, credit cards,
debit cards, pre-paid cash cards and store cards.

Since he may require a lot of cash for inter-city travel which can span a few days or weeks he
preferred to use his debit card or credit cards.

For instance he could use his card to pay for hotel stays where cards were commonly accepted.
Similarly for travel he could book tickets online, while for food he had to rely on cash .However,
with his debit card he could withdraw cash whenever required which made his life easier. Even if
he forgets to carry cash he can use his debit card to withdraw funds whether required.

Advantages of Plastic Money

There are several advantages of plastic money as seen in the above illustration. The advantages
include Eliminates the need for carrying huge cash: This eliminates the need for carrying huge
load of cash which is risky and inconvenient too.

Risk of Loss or Theft minimized: In case of cash there is a high risk of losing cash and a chance
of cash getting stolen. However, in case of debit/credit card you can report the matter to the bank
and block the card to avoid misuse.

Anytime/Anywhere Access using cards you have the unique advantage and convenience of using
it anywhere in the country or even abroad.

Credit Facility: In case of credit card you have the option of buying on credit or paying later.
Although the charges are high, it helps you in case of emergencies and contingencies.

Online Payments: You can use cards for online payments, fund transfers and various other
transactions.
These are the key benefits which I can easily remember, but there could be various other good
features too that are specific to certain cards.

5 different kinds of plastic money

Credit card.

Cashless payment with a set spending limit

Payment takes place after the purchase

Great flexibility thanks to installment facility

Most well-known credit cards: American Express, MasterCard, Visa

Charge cards

Cashless payment without a set spending limit

Payment takes place after the purchase

No credit or installment facility

Most well-known charge cards: American Express, Diners Club

Debit card

Card is directly linked to the cardholders bank account

Transaction is debited immediately from bank account

No credit or installment facility

Most well-known debit cards: Maestro, Postcard

Customer card/store card (PLCC)

Card with payment and credit function

Can only be used at specific retailers

Well-known customer cards: my One, Globes, Media Market

 Prepaid card/gift card

Card is topped up with credit before use

No credit or installment facility

Open system (American Express, Visa, and MasterCard) or closed system (can only be used at
specific retailers)

Disadvantages of Plastic Money

So far Ive been sounding like a nice, pleasant Bank Executive who is convincing you to open an
account. Please note a few points before we look at the disadvantages of plastic money

Cards/plastic money is not a complete replacement for cash

Use of cards can also be risky in some cases

Some of the drawbacks or risk related to cards is

1. Non-Acceptance at Small Retail Outlets

Unless you are a person who shops only in supermarkets and hypermarkets you will be forced to
use cash

2. Cannot be used for all daily needs

You cannot pay your milkman, servant, paper wale (newspaper guy), etc by card.

3. Loss & Misuse

Once a card is lost you have to immediately report it and get the card blocked to avoid misuse.
Sometimes when you are not aware that you lost the card.the chances of misuse is higher.

Mr. Dev, who was on a vacation returned home after 10 days. He was not aware of his card
(which he lost during the trip). One fine day when he checked his bank account he found that
Rs.75,000 worth of purchases have been made on his credit card. Too late. But this case is a little
old.

Today lot of checks and balances has been put in place. For instnce for debit card the customer
has to key in the PIN for offline purchases, and additional passwords/authentication for online
transactions. Even then taking precautions is absolutely necessary.
4. Low Value Transactions

As discussed above already there are cases where small and medium sized retailers dont accept
cards for low value transactions (say less than Rs.200 or other criteria). You may have noticed
this even in case of outlets like petrol bunks or restaurants.

5. Service Charges

In some cases the outlets charge additional service charges for cards. So this can be another
burden on your pocket.

6. Damage to Card

Sometimes the cards magnetic strip gets damaged or scratches or cuts can render the card
unusable. So keeping it safe and secure is very important.

7. Carrying or Keeping the Card

Keeping the card and cash in the wallet together is like inviting trouble. This is the way
everyone (including me) used to carry cash and cards. But this means once you lose your wallet
you lose everything.

So here the card does nt come to your rescue after losing cash. The best practice is to keep cash
and cards separately so that if you lose one you have the other to bank upon.

By the way, nowadays I don t carry cards in my wallet. Its mostly in the bag or sometimes in a
different pocket. You can try this or other methods but ensure that you dont keep everything in
one place and lose it all.

Now that we have a clear idea of some of the drawbacks of credit and debit cards lets also look at
some key points on how to strike a balance between use of cash, cards and control your spending
habits.

8. Spending Habits & Other Tips

Whether you use cash or cards, having a control on your spending is very important. A few
pointers
would be worth noting.

9. Impulsive Purchases

Dont yield to impulsive purchases. Try to see what real benefit or value are you getting from the
purchase. If you cant live without it you can postpone or keep the spending on hold.

10. Peer Pressure

Its okay to spend some money on entertainment, outing, fine dining, etc. once in a while (say
once or twice a month).But if you do it every week on instance of your friend, colleague, etc you
will have not savings every month end. Your future financial planning is out of question if you
live from pay cheque to pay cheque.

So its time to become smart and avoid unnecessary wasteful expenditure. Sometimes you may
have to attend a few parties, dinner/lunch activities, etc but prioritize and attend only the ones
which are important and add value to you. For others you can say sorry and avoid or try to finish
it over a simple coffee.

11. Overuse of Cards

I find that people who are finding cards as a convenient medium try to use it everywhere left,
right and center. Further, they have 3-4 cards which are used one after the other at different
places. I would advise them to have fewer transactions so that it is easier to keep a check on the
transactions every month and easier to pay the bill as well.

12. Special Offers, Discounts

Some people have this fancy and think that they are smart when they get special discounts on
cards at retail outlets.

13. Debt Trap

Overuse of credit cards and rolling over your balance is the shortest route to bankruptcy.
Remember that you have to pay your credit card in full. If you know what this means in letter
and spirit you will be careful while spending on your credit card. The interest rate on credit card
roll over is as high as 3-4% every month which translates to 36%-48% every year.
14. Cash Management (Running to ATM often)

Most people particularly those who started their careers in the last 3-4 years have been more used
to cards than cash. They dont carry much cash and dont keep cash at home too.

This is absolutely disastrous. When someone at home has a medical emergency or has to buy
groceries or do some major repairs cash in hand is absolutely necessary. Ive seen people who
often run to ATM when they want to purchase some groceries.

Surprisingly some people dont even keep Rs.1000 at home when they actually earn more than
Rs.50,000 per month. This is just over dependence on cards, which is foolish, because you still
need cash for most of your expenses.