Want to help the poor? Start by taking money out of their hands. More specifically, cash — coins and paper bills are the silent enemy of the poor, with costs often out of proportion with their day-to-day convenience.
On one level, it’s ridiculous to think of cash as problematic; if you have a mountain of paper money, you aren’t exactly impoverished. And at times cash seems like exactly what we need. Saying “yes” to cash can seem like saying “no” to overspending and steering clear of big banks, which means saying “no” to credit-card debt, overdraft fees and Big Brother. In the age of zeroes-happy bank bailouts and household credit-card debt on the order of $800 billion, cash stands for individual empowerment and no-nonsense finances. Right?
The irony of this line of thinking is that most of the people espousing the virtues of cash simultaneously enjoy the safety and cost savings of electronic money. Even those who despise credit cards usually have bank accounts, receive payments via auto deposit, use stored-value cards for public transit and more likely than not pay their rent or mortgage, utilities, medical expenses, Internet service, hotel bills and auto insurance by transferring sequences of 1s and 0s between faraway computers. Click. Sure, you may still need a bill or two now and then for Salvation Army Santas, waiters and bellhops. But for the most part, the better off you are, the less you need cash — and the easier it is to avoid it.
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In contrast, the poor — tens of millions of people in the U.S. and billions of people worldwide — often have no option but cash, and pay dearly because of it. In a recent piece for Foreign Policy, Vishnu Sridharan of the New America Foundation writes that cash-based economies “harm the poor by heightening the risks they face when carrying money and fueling government corruption and inefficiency.” Imagine literally having your life savings under your mattress or folded into a coffee can, vulnerable to fire, thieves, drunken relatives or nagging neighbors. Imagine having to ride the bus for hours to settle a bill, or traveling for days to deliver funds to a relative. Your already fragile finances can also get hammered by outrageous fees charged by check-cashing services or astronomical interest rates levied by payday lenders.
Psychologists will tell you that we are more careful with our money when operating in cash because forking over those funds is a more salient experience than swiping a debit or credit card. But for the poor, especially in the developing world, it’s the opposite: cash gets spent. That makes it harder to buttress against financial shock and save enough to reach solid financial footing. In some parts of the world, people actually pay local strongmen to safeguard their money because having cash on hand is so precarious. Think about that: not even Wall Street bankers charge you to stash your money in a savings account (not yet, anyway).
Millions of people on the margins often tumble back into poverty because of sudden setbacks — major illness or natural disaster, for instance — but just as often they are small-scale financial disturbances like a sprained ankle, a leaky roof or a broken-down moped, which prevents you from commuting to work. Even if you’re managing to get by, a cash-only economic existence makes it difficult to save for long-term investments such as education, job training or farm equipment to break the cycle of poverty.
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So what’s the solution? You probably have one in your pocket. By 2014, about 90% of all adults in the world will have a mobile phone. Technology companies have already shown that you don’t need the latest, flashiest model to send and receive money as easily as a text message and that you can remotely — and securely — access a bank account from the cheapest sort of handheld. Mobile technology will enable the poor to keep their money in the same form that you keep most of your money: digital. Not tomorrow, but soon enough, passing someone a bunch of banknotes or a clinking handful of coins will seem as dated as using a pay phone.
Digital money and mobile technology alone won’t end poverty, obviously. But as Rodger Voorhies, director of financial services for the poor at the Bill & Melinda Gates Foundation, writes, innovations in these areas “hold the promise to increase transparency, improve financial access and help low income people get out of poverty and stay out of poverty.” If we can turn cell phones into the wallet and bank branch of tomorrow, we may end up doing more to combat poverty than cash donations ever could.
Wolman (@DavidWolman) is a contributing editor at Wired and the author, most recently, of The End of Money: Counterfeiters, Preachers, Techies, Dreamers—and the Coming Cashless Society (Da Capo Press, 2012).