How age, income, education affect preferred payment types

Cash, debit or credit? Whatever your reasons are for your preferred payment method, there's a good chance they were influenced by people similar to you, either in age, education level or income.

According to the Bank of Canada's 2015 spring report, affluent Canadians turn to credit cards, young and educated consumers are adapting mobile payments, and cash and ATMs are losing their lustre.

"Options give us choice and in turn it increases competition which favours consumers," says Scott Hannah, president of the national Credit Counselling Society.payments-by-demographic

The Bank of Canada says that wealth is a determinant in how consumers pay for things. Canadians with cushy incomes are shunning cash in favour of credit. According to the spring report, in 2013, low-income families paid with cash 52 per cent of the time,
while high-income earners use cash only 35.7 per cent of the time.
Medium-income earners fell in between those percentages.

The findings are intuitive to Hannah. Credit cards come with perks -- travel insurance, reward points, cash back, extended warranties. High-income earners use these tools to stretch their dollar.

A higher income could also mean qualifying for a higher credit limit
and even paying for cards with annual fees. These luxuries aren't necessarily available to Canadians with lower wages.

"Some low-income families may not have access to credit or they may have maxed out their credit cards in the past," says Pat White, executive director of Credit Counselling Canada. "For them, it's easier to keep track of the money they have by using cash."

Canadians with a higher income have more spending flexibility, too.

"They probably have a surplus of income at the end of the month and it's no problem for them to put something on a credit card," says Hannah. "They don't have to watch every nickel and dime."

Finally, if you have a low income, you may not even own a smartphone or be able to afford a data plan, which may explain why lower-income earners aren't adopting newer payment technologies.

Age and education
As chequebooks become relics, cash is the go-to option for seniors, for the most part, according to Hannah and White.

The Bank of Canada report says younger and higher educated Canadians aren't using cash.

And credit cards may be in their prime right now, but Canada is on the cusp of a new frontier of payment options. Mobile wallets, digital currencies, PayPal and smartphone apps are only a handful of technologies within reach for consumers.

"Not surprisingly, the 18-34-year-olds, those with higher incomes or university-educated respondents had the highest rate for use of payment innovations," the Bank of Canada report says.

Both White and Hannah look at their kids (who range in age from mid- to late-twenties) as prime examples: White's daughter rarely uses cash, and Hannah's two sons whip out their smartphone apps, debit and credit cards whenever they need to pay for something.

Concerns about trends
As cash is being pushed aside for credit and contactless payments, credit counsellors are sounding alarm bells -- invisible money is an easy way to rack up debt you don't have the means to pay off.

"The changes have happened so quickly - the advances we've made in our finances over the past 20 years are amazing," says White. "It's great to have options, but people still have to be aware of managing their money. The more we're getting away from the hands-on use of cash, the more distance there is from the reality of actually paying for things. We're seeing a generation of children growing up with no concept of money being exchanged. There's a card that's just tapped and the trade for cash for goods isn't visible."

Statistics back her up: the average Canadian who seeks credit counselling is about 45 years old, with a gross monthly income of $3,500, according to freshly released data out of White's organization. The top reason for getting in over their heads in debt was abusing credit, followed by job loss and money management issues.

It's also a tumultuous time for using credit, debit and mobile payments: data breaches are reported by the handful, as consumers' credit card and banking information are stolen by fraudsters.

Hannah says cash has its own set of risks, too. When the non-profit opened its doors in 1996, it received payment from clients in cash.

"We had $20,000 of cash in our payments deposit," he recalls. "I didn't comfortable going to the bank with that much money on me. We made the decision to do away with cash payments and had clients mail in money orders."

See related: Choosing a debit card for every life stage, Will a higher income solve debt problems?, 5 smart financial moves for low-income seniors
Published June 16, 2015

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