APRIL 2013 IN
RICK ASTER’S WORLD

With Higher Transaction Fees, Fewer Purchases?

As banking transactions become more expensive, will people respond by buying fewer things?

Banks are raising fees, including transaction fees, to make up for revenue lost in the faltering real estate market. But according to economic theory, this could lead to a degree of resistance from consumers. To an extent, consumers can get around bank fees by paying for purchases in cash, but not everything can be purchased with cash. Consumers not willing to pay a new surcharge might forego some purchases, and that could lead first to more saving, and paying down loans faster — but in the long run, consumers might work less if they are spending less.

Another possibility is that total purchases stay about the same, but consumers spend more of their money locally, in cash, buying different things than they did before. A slight shift in this direction has been observed already with the decline in credit cards as consumers shift to debit cards and cash.

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