Final answer:
A checking account with a debit card and bill pay functionality is recommended for someone who uses money orders to pay bills, as it is more convenient and may reduce costs. Unlike money orders, which incur fees and require physical handling, a debit card allows direct bill payments from an M1 account.
Step-by-step explanation:
For a customer who routinely purchases money orders to pay bills, it would be advisable to recommend a financial product that enhances convenience and reduces transaction costs. Considering the information provided, which differentiates between M1 and M2 money supply and their relative ease of use, a debit card or a checking account with bill pay services would be suitable suggestions. Money orders may be a secure way to pay, but they come with fees and require the customer to physically purchase and mail them.
Debit cards operate using M1 funds directly from the customer's checking account. Using a debit card to pay bills can be more convenient and often comes without the added costs associated with money orders. Moreover, many financial institutions offer online banking services that allow customers to set up automatic payments or pay bills electronically directly from their checking accounts. This modernizes the process and saves the customer the effort and fees of obtaining money orders.
It is important to note that while credit cards can also be used to automate bill payments, they are a form of borrowing and the funds used do not constitute M1 at the time of the transaction. It is, in reality, M1 from the credit card company which you will need to repay with M1 from your own funds at a later date. Thus, using credit cards comes with the responsibility to repay the balance, often with interest if not paid in full by the due date.
In conclusion, a checking account with a debit card and bill pay options would provide a streamlined and potentially more cost-effective way for the customer to handle bill payments, compared to purchasing money orders.