[MUSIC] So in this segment we're going to talk about some alternatives to using cash for some of our day to day expense transactions. And specifically, we're going to spend some time talking about the use of debit or check cards versus the use of credit cards. So just in terms of kind of framing the importance of this alternative to cash transaction discussion, there's been a really big trend and a continued trend towards the use of more non-cash transactions over time. And when I talk about non-cash transactions, that can include everything from the use of debit and check cards or credit cards as well as ACH payments rather than the traditional check writing process that was maybe more common 10, 15, or 20 years ago. Something that as young adults, your parents are probably more familiar with than you might be. Even as a young kid, I can remember my parents regularly carrying, way more cash than you think would be normal today just because the use of debit cards wasn't available at the time. And credit cards were not nearly as popular or accepted in as many places as they currently are today. But over time, we have realized that the use of debit and check or credit cards does offer a very convenient alternative to cash. Another nice thing about the use of non-cash transactions such as these is that it automatically creates a record of our spending. So while it's still good practice to save receipts, being able to use your credit card or debit card and then going back and reviewing those historical transactions on your monthly statement is going to automatically provide you with that information that you need to go through the budgeting process. Online services have made that even more convenient. And in a lot of cases, our credit card accounts or the bank accounts that may be associated with our debit or check card are going to even offer budgeting tools and resources that we can use to take that transaction information and have it automatically be put into a budget form for us. So it offers a lot of convenience from a budgeting perspective as well. The other point that I want to make before we get into some of the specifics about debit versus credit cards is the security issue. So depending on what you go online and Google and read, you'll find a lot of information, a lot of sources that talk about how much safer credit or debit cards are relative to carrying cash. And they may point out to the fact that if you're mugged carrying a significant amount of cash, that's obviously going to be lost versus carrying a credit or check card if you're mugged or if you just simply loose your wallet or your money clip. At least you can cancel that card and maybe limit your losses in terms of actual money lost in those types of situations. On the other hand, the more widespread use of non-cash transactions with debit or credit cards has increased the potential, or created the potential, greater potential for fraud and identity theft. So while it has helped to alleviate some security concerns, reduce some of the risks associated with carrying cash, it has also created potential new problems as we move towards using more non-cash transactions over time. So we'll first talk a little bit about debit cards just so we have a good understanding of how debit cards work and then we'll move on to credit cards. So in the case of a debit card, your purchases that you make with a debit card are going to be directly deducted from a bank account balance. Typically, debit cards are going to be associated with a checking account. Good or bad, any purchases that you make that may exceed the account balance are going to result in either a refusal to accept the charge, so you just won't be able to make the purchase. Or you may be fined or penalized with what a bank is going to call an overdraft charge. So if you're spending more money using that card than you have in the account, that may overdraft your checking account balance. And there may be fines and penalties as well as the need to replenish those funds in that account within a relatively short period of time. Another nice thing about debit cards is that typically they double as an ATM card so you can use them at ATMs for cash withdrawals with the addition of a personal identification number or PIN number. Worldwide or within the country that the ATM card was issued, you're going to have access to a network of ATMs that you can make some cash withdrawals using that card. The nice thing about debit cards is that, again, you can also use them to make purchases directly. Typically you can use that card to make them like a credit card purchase. So your debit or credit card may be a Visa debit or a MasterCard debit. You can use that just like you would use a Visa or MasterCard credit card. Or you also have the option of using it to make a debit purchase which, again, would require your PIN number to authorize that purchase. In either case, it's still going to be the situation where the funds are going to be automatically deducted from the account that the card is associated with, which again, can be good or bad. It does limit the amount the purchases that you're able to make and it does provide some ability to limit the amount of purchases that could be put on the card. But it also takes away some of the flexibility that you might have with a credit card in terms of having a higher credit limit on that card. Another nice thing about debit cards is that since you're just spending money that you have in that account, there's going to be no interest or repayment required. The money is being spent as the purchase is being made. However, with a debit card there is typically more limited fraud protection if we compare it with the security associated with a credit card that we'll get to in a minute. So you do need to regularly monitor your account activity just to make sure that no unauthorized purchases are being made. And in the event that you do notice some unauthorized purchases, some activity that you're not familiar with. Some things that you know you're not using your card for, you'll want to contact your bank or your financial institution immediately to report that suspicious activity. All right, so just to compare debit cards with credit cards, credit cards differ in that the purchases are not going to be directly deducted from any kind of bank account that you hold. They're going to be applied to a line of credit that the credit card company is going to issue you. So if you have a Visa or a MasterCard or a Discover Card, they're going to authorize you to spend up to a specific amount. That's your line of credit with that account. And you're going to be able to make purchases up until you reach that credit limit. So you have you're ability to use your credit card as a source of borrowing again up until that account's credit limit. However, because this money isn't automatically being deducted from an account. It is like you're taking on a short-term loan and interest will be charged as well as potentially other fees on purchases that you make if you don't pay off your credit amount every billing cycle or within the rules associated with that credit account. So, there is the potential here for interest charges over time, as well as fees or penalties if you don't make your credit card account payments on time. Credit cards can be used for cash advances in most cases. However, compared with a debit card that you might use in an ATM, cash advances on a credit card are typically going to be associated with relatively large fees. You're not going to be able to access the money as cheaply as you would at an ATM with a debit card. Nice thing about credit cards is that most companies do offer relatively strong fraud protection. There is still the need to regularly monitor your account activity and make sure you report any suspicious or incorrect charges that show up on your account to your credit card company. But the amount of fraud protection on a credit card typically is stronger than it would be in the case of a debit card. Another advantage of credit cards is that as long as you use it responsibly and regularly, it can be used to help build your credit history. And this is a topic that we go into more detail in on the Credit and Borrowing module, but for now, just understand that it is to your benefit in the future to build a credit history. Credit cards also often come with some type of rewards program. I usually don't like to put too much focus on this being a huge advantage associated with credit cards, but you can earn cash back bonuses or maybe frequent flyer miles, or miles that you can apply towards future travel purchases or things like that with a credit card program. I would never view a rewards program as a reason to open an account but you can look at those as kind of additional benefits that go along with having a credit card and using it regularly and responsibly. All right, the final topic that I want to cover in this segment is just taking a look at some of those things I referred to in terms of consumer fraud protection. And I do want to highlight here that I am talking about some of the specifics to fraud protection for debit and credit cards in the US. So we have some federal regulations that have been passed here in the US. These may not apply internationally so I just want to make sure that everyone viewing this segment does understand that this is very US-specific. So if we first focus on debit cards and the amount of fraud protection that is provided by law in the US. For debit cards, the user is typically or could be responsible for up to $50 of any unauthorized charges if you report it immediately. So if you notice some suspicious activity, an incorrect charge on your account and you're able to report that within two days, you're only going to be held liable for up to $50 of that purchase. If you wait until after two days or it takes you longer to identify that activity, you could be responsible for up to $500 of any fraudulent purchases that are made and that liability can become unlimited. So you could be liable for any fraudulent purchases if you let a 60 day time period lapse in between when those charges show up and when you report them to your financial institution. So again, you want to make sure that you're regularly monitoring your account activity and report those things if they do show up as quickly as possible. Another thing with debit cards to understand is that you may not have access to funds associated with unauthorized charges for a period of time. So because the way a debit card works is it automatically deducts the purchase amount immediately from the account. Even if you do notice some unauthorized charges and identify them even within that two-day period, it may take some time for your bank to refund the portion of those charges that you're not liable for. So just to keep that in mind, there may be a period of time where you don't have access to that money even if at some point in the near future the bank or the financial institution will refund you a portion of those fraudulent charges. Something that is for both debit and credit cards is that if you're carrying a homeowner's or renter's insurance policy. There may be some coverage listed in there for fraudulent debit or credit card charges up to $500.00. So something that's true for both debit and credit cards. If we switch over and just talk about things that are specific to credit accounts or credit cards again, the fraud protection is typically stronger. And in the US, we have federal regulations that do provide some minimum levels of fraud protection that are higher for credit cards than debit cards. Regardless of when those unauthorized charges occur and when you're able to report them, you're only going to be responsible for up to the first $50 of those charges. And in reality, many companies, most of the major credit card companies now offer zero liability protection. So again, as long as those fraudulent charges are identified and reported, you may not be liable for any level of those fraudulent charges. Another nice thing about credit cards and fraud protection is that in comparison to debit cards where you may not have access to those funds for a period of time while the bank works things out. With a credit card, as soon as you report it, it's pretty typical for you to not be responsible for those unauthorized charges. The credit card company might credit your account immediately or at least within the next billing or statement cycle so you're never going to have to cover those fraudulent charges. So again, another advantage relative to debit cards in terms of fraud. The best piece of advice that people can give you on the use of debit and credit cards is that while they do offer a lot of convenience, they do in some ways improve security relative to the use of cash. These are accounts that you need to regularly monitor your transactions and your account activity to be sure that you can identify and report any fraudulent activity as soon as possible. So to summarize this segment, again we started out by talking about how the growth of non-cash transactions has continued the trend upward over time. So more and more Americans are using cash and traditional checks less and less and using their debit and credit cards for purchases more and more regularly. The main reason for that is debit or check and credit cards do offer a much more convenient alternative to cash. They do alleviate some security concerns in terms of having to carry around potentially a large amount of cash for purchases, but they also create new security concerns in terms of fraudulent charges or identity theft issues relating to use of those accounts. We did do some comparisons of debit and credit cards and they definitely do have some similarities in terms of how you can use them for purchases. But there are also some pretty important differences in terms of things like identity theft and fraud. As well as having a credit line on a credit account versus having purchases directly deducted from a bank account when your using your debit card. The best piece of advice that anyone can give you in terms of using these accounts is that you really need to be aware of your card's fraud production policies, and regularly monitor your account activity to make sure that you can report any suspicious behavior as soon as possible. [MUSIC]
