To Help the Economy, Leave Your Credit Cards Home

The United States economy is dependant on consumers spending money.  These days, the economy needs all the help it can get.  A local economy benefits when shoppers buy goods and services in retail stores, rather than online.  Better still, patronizing a locally owned business, rather than a national chain store or restaurant, will keep even more money flowing in the local area.

We have all heard that you should help your local area by shopping in locally owned stores.  This is true.  Many cities have even setup websites to list and promote locally owned businesses.  A chain store certainly provides jobs and pays taxes.  But when you purchase goods at a chain store, much of that money is sent to its corporate headquarters, which is probably not in some far away city. 

To maximize the positive effect that your purchase will have on the economy, those purchases should be paid for with cash, checks, or even debt cards.  Not a credit card.

Simply put, using a credit card strips money out of the pocket of the retailer or service provider.  Somewhere between 2% to 6% of your credit card purchase is kept by the banks and the credit card companies.  That's money taken out of circulation (i.e. the economy) and stuffed into the pockets of the bank.

For example, suppose there is a local store or restaurant that does $1 million in annual sales.  Not $1M in profit, but $1M in annual sales.  That's an average of about $2800 of sales per day, which is easily obtainable by many successful businesses.  After subtracting normal business expenses (employee salaries, taxes, insurance, utilities, rent, advertising, inventory, etc) the final profit may be $100,000.  Pretty good profit actually.

Now if the sales of that store were made using credit cards, then about 3% of those sales are taken away and sent to the bank.  Remember, its 3% of the sales, not 3% of the final profit.  In our example, that's $30,000 removed from the pocket of the retailer, and out of the local economy.  Looking at it this way, the business' profits are now reduced by 30%. 

What's an extra $30,000?  It's the ability to hire another employee.  Or two part-time employees.  Not from extra sales, just the same sales paid by cash.  This example is just one store.  Think of this scenario in all the stores in your area, and the numbers are staggering.

In addition, your personal economy is enhanced by keeping your credit cards at home.  Without using credit cards, you will not be paying extra interest or other fees.  Interest paid is just more money out of your pocket, sent to the bank.  For nothing!  Just wasted money.

Think about this the next time you pull out your credit card.  Help your local retailer and economy by putting that credit card back.  Pay with cash or check.  If you like the convenience of a credit card, consider using a debt/check card.  Be sure to tell the clerk to run the transaction as a debit card.  Processing the debit card as credit will cost the retailer their 2% - 6%.  If the retailer cannot process your transaction as a debit card, then return to the old standby.  Pay with cash.

The retailer pays a small transaction fee when accepting payment via a debit card.  It's a flat fee, and usually very minimal.  Nowhere near 2% - 6% of your purchase.  This is why some stores will offer cash back when using a debit card.  It does not cost the store any extra money, and it may save you a trip to the ATM, and perhaps an extra ATM fee.  Which is more money sucked out of your wallet.  Wasted.