Electronic payments by phone, card and computer continue to gain market share. And yet millions of Americans keep using cash.
Some lack an alternative because they don't have a checking account. Some value the privacy of cash transactions or the psychological security of knowing that cash is always accepted. For some families, using cash is cheaper than credit and helps them control their spending.
But there is a cost to using cash, in both time and money, that's not always considered. Those costs include fees to use a check-cashing service, withdraw from a non-network ATM or access wages loaded onto a payroll card.
A new study by Tufts University, The Cost of Cash in the United States, puts that price tag at about $200 billion a year. This figure includes $55 billion in higher costs to businesses, $43 billion for U.S. households and $101 billion in missed tax revenue because of off-the books transactions. For the average American family, the cost of cash is about $1,739 a year. The authors characterize their estimates as conservative.
"Obviously, cash is never going to go away—it's an important part of the economy," said study co-author Bhaskar Chakravorti, executive director of the Institute for Business in a Global Context at Tufts. "But we need to recognize the costs it's imposing, both real costs and opportunity costs."
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Here's what the report, based on a survey of 1,000 Americans, found:
The cost of cash is higher for poorer and unbanked Americans.
Someone without a bank account pays an average $3.66 more a month than someone with one.
"Those who are unbanked are four times as likely to pay fees to access their own money. That's a significant difference," Chakravorti said. "A lot of people have the idea that cash is a poor man's best friend. We feel that the poor are actually getting screwed across the board. They're definitely being hurt dealing with cash."
The cost of cash does not happen at the point of sale.
The added expense comes from the time and money it takes to get that cash. The average American spends 28 minutes each month (5.6 hours a year) going to the bank or ATM to fetch cash. And this doesn't count the time spent waiting in line. The average fee to use a non-network ATM is now about $3.85 per transaction.
Other significant findings: African-Americans are more than twice as likely as other racial groups to pay for access to cash. Retirees are less likely to pay, probably because they often like to go to the bank and use a teller.
A key cost factor is the way people receive their wages. Someone paid by payroll card (prepaid debit card) has average costs that are more than four times those faced by others surveyed. Those with direct deposit or who get paid in cash have the lowest fees.
The study found that getting paid electronically (either through direct deposit or a payroll card) is often significantly cheaper than receiving a paper check if there are check-cashing fees (for the unbanked).
Who has the cash?
Most of us have some cash on hand, but that amount varies by income and key demographic factors. Here are some key findings from the study:
- Those in households with income of $20,000 to $100,000 a year usually have less than $100 in cash.
- Those under 35 have median cash balances roughly half the size of those over 55, but they pay more in fees than older people.
- Men carry nearly double the amount of cash women do. Men are also slightly more likely than women to always keep some cash on hand. This might explain why men use roughly 50 percent more cash each month than women.
- The self-employed and those who hold multiple jobs have the greatest cash balances.
- Latinos, Pacific Islanders and Native Americans report much higher average cash holdings than white, African-American and, in particular, Asian-Americans.
Is there a lesson here?
Benjamin Mazzotta, a research fellow at Tufts who co-authored this study, believes it has important public policy implications. They include if something should be done to help people on fixed incomes, or those who don't have or want a bank account but need a modern, cost-effective way to pay for things.
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"Why shouldn't they have access to reliable, cheap, universally accepted payment instruments like the ones you and I use and take for granted every day, like debit and credit cards and direct deposit?" Mazzotta asked.
The National Consumer Law Center, an advocacy group for lower-income and other disadvantaged Americans, agrees that it's important to give people access to electronic payments, so they don't have to rely on cash. But staff attorney Lauren Saunders isn't convinced that all the new systems are superior to cash, which is so easy to use.
"In the financial world, there are costs to everything," Saunders said.
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The center wants people to have access to both cash and electronic payments, whatever works for them.
"We shouldn't discourage cash and push everybody to electronic payments, because a lot of that is being driven by industry looking for ways to get their two cents out of it, to earn fees that you don't get when people pay with cash," she said. "Cash is still very useful."
This story has been updated to correct the cash figure in the headline.