These days, conventional wisdom dictates the demise of cash in the not too distant future. After all, use of the other major payment instrument, the check, has dropped dramatically in the last ten years in favor of electronic instruments, particularly the debit card. But a report from the Federal Reserve flies in the face of the generally perceived notion that we are ultimately headed for a financial system where you might simply pass your hand under a scanner to buy or sell.  If this new report is accurate, that theoretical world is going to take some time to put into place.

payments_by_transaction_amountAccording to the Diary of Consumer Payment Choice (2012) and contrary to common perceptions, people still mostly use cash to buy things. That is because cash is a very different payment instrument than checks or cards. When given a choice, especially in small-value transactions, consumers choose to use cash more frequently than any other payment instrument, including debit or credit cards.  And for many lower-income consumers, who lack access to alternative payment options or find them too costly, cash is the only alternative for both small and large transactions.

Here’s an eye opener – cash makes up 40 percent of all consumer transaction activity, followed by debit cards at 25 percent, and credit cards at 17 percent.  Electronic methods (online banking, bill pay, and bank account number payments) account for 7 percent, while checks make up 7 percent.  Interestingly enough, despite the huge rise in mobile payments over the last two years, they barely register at less than one-half of one percent.

Here are some other interesting factoids:

Cash plays a dominant role for small-value transactions.  When people walk into a store and buy a bag of chips or a newspaper they usually pay with cash.  According to the Fed study, about one-third of the average consumer’s monthly payments involve transactions that are less than $10 and two-thirds of these transactions are done with cash. Similarly, consumers use cash for half of all of their transactions valued at less than $50.

Cash is the leading payment instrument for specific types of purchases.

  People who buy gifts, food and personal care supplies, entertainment, transportation, and medical, educational and personal services, prefer to use cash.  It is the second most frequently used payment option for all categories except housing.

Cash is the key alternative when other options are not available.  As stated above, when consumers do not have access to credit or debit cards, based on their income level or ease of access, they pay with cash.

Here’s an interesting point – Cash is the leading payment alternative for Generation Y.  Forty percent of young people between 18 and 24 prefer cash over all other payment instruments.  When they are forced to use some other means of payment, they choose debit cards by a large margin, because they have limited incomes and therefore limited access to banking services.

And here’s the best one – Cash can’t be hacked.  In a financial world dominated by recent media reports detailing huge hacking scandals that put an enormous segment of the buying public at risk, consumers are becoming wary of the safety of debit and credit cards.  In a recent study only 39 percent of cash_money_bills_20110902021224_320_240 consumers were ‘very confident’ in the safety of plastic as a payment option.  According to the study conducted after the Target data breach, 32 percent reported they would be using cash as a method of payment more frequently.

So, contrary to the current theorists’ vision of an over-arching government financed by a totally cashless payment system, recent trends indicate that we are far from a society that will unthinkingly embrace digital payments.  Whether the powers that be can come up with a viable, acceptable, and trustworthy alternative to cash remains to be seen and until then, as always, cash will be king.

Is the Cashless Society upon us?  Maybe not… – ©2014 Money Movers, Inc.

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