A recent article by Oz Shy, senior policy adviser and economist at the Federal Reserve Bank of Atlanta, drew some interesting conclusions based upon a multitude of studies that have been conducted over the years to investigate the behaviors displayed by consumers in a variety of situations. While the concept of a cashless society has been thrust into the ether for some time, new developments in nations that have adopted these systems have once again brought this topic to the forefront of discussion. The notion of the U.S. becoming a cashless society is a controversial one and often sparks furious debate, with opinions ranging from cashless societies ushering in either a utopian future or a dystopian one. One example of this debate has coalesced around China’s implementation of WeChat and Alipay in combination with its Social Credit System, the latter of which has drawn widespread criticism from the West. Despite the adoption of cashless transaction systems by several nations abroad, the United States remains unlikely to follow in the near future, given the continued dominance of cash for use in small transaction payments and for individuals who fall on the lower spectrum of household income.
The largely data-driven article by Shy provides a detailed look into the financial behaviors of Americans as they relate to overall transaction amounts and yearly household income. The first chart in Shy’s article displays observations of in-person purchases made by 2,062 survey respondents in six merchant categories during the 2017 Survey and Diary of Consumer Payment Choice. These six categories are described as “(1) Grocery stores, convenience stores without gas stations, pharmacies, (2) gas stations, (3) sit-down restaurants and bars, (4) fast-food restaurants, coffee shops, cafeterias, food trucks, (5) general merchandise stores, department stores, other stores, and (6) general services: hairdressers, auto repair, parking lots, laundry or dry cleaning, etc.” What is interesting to note about this chart is that as the payment amount of purchases increased in dollar value, the percentage of transactions that used cash or prepaid card for payment decreased, while credit card, debit card, and check payments increased in frequency. This was inversely true for smaller payment amounts, where cash largely dominated. What can be taken away from this is that cashless payments are preferable to consumers in higher-value transactions, whereas cash is preferable in lower-value ones.
The second chart Shy uses in his article was generated from survey respondents in the same study providing their demographic information regarding their yearly household income (from $0-$120,000) and whether or not they use credit and debit cards. Data in the second chart correlates higher household income with an increased likelihood of credit card adoption, or adoption of both credit and debit cards, as well as a lower likelihood of using neither type of card. At $10,000 or less yearly household income, 21.1% of respondents said that they had neither debit nor credit cards, but the highest percentage went to those who said that they used debit only. Between $10,000-$20,000 yearly household income, about half of respondents claimed to use both cards. At the median 2017 U.S. family income of $61,372, card adoption was almost ubiquitous, with only 3% using neither credit nor debit cards.
The box plot that follows the second chard in Shy’s article combines data from the first two portions and examines two different groups regardless of yearly household income: Those who carry both credit and debit cards, and those who carry neither. For respondents that carry both credit and debit cards, they made the most payments with debit (36.1%) and the fewest with check (1.2%). However, the highest average payment value was relegated to checks ($303.75), whereas the lowest average payment value again was associated with cash ($14.12). For respondents that did not carry either credit or debit cards, most payments were made with cash (86.4%), followed by prepaid cards (12.2%) and checks (1.4%). Cash was also used for the lowest average payment value for those who do not have credit or debit cards ($29.59), while checks made up the highest average payment value ($100.16).
The third chart focuses primarily on the cash usage percentage for respondents who have both credit and debit cards, respondents with only debit cards, respondents with just credit cards, and respondents with neither. While prepaid cards and checks are still sometimes used by those who do not have credit or debit cards, findings in the 2017 Survey and Diary of Consumer Payment Choice indicate that cash still makes up the vast majority of their purchases, with checks and prepaid cards considered by the study to be outliers from the norm.
Now that we’ve digested all of this data, what does it mean for the future of cashless societies and coin collecting?
In an era where privacy is largely considered a luxury instead of a right, cash offers a rare solace from the intruding eyes of others, since it ironically leaves little to no paper trail. While not mentioned in Shy’s article, the aforementioned reason, which has been extensively discussed, is possibly one explanation for why higher income individuals still use cash in certain transactions. Concern for privacy also correlates with the rise of cryptocurrency. Cash will likely continue to dominate small transactions and still forms the overall backbone of purchases made by low-income individuals, for whom it is more difficult to obtain credit cards or set up a bank account. For these individuals, Shy has constructed a theoretical model which proposes that prepaid cards are the most feasible alternative to acquiring credit or debit cards in a cashless society. Shy also mentions a study by Chen, Huynh, and Shy (2019), in which consumers’ decision to not use cash was partially influenced by the “burden” of receiving coins in their change.
Considering the previous point that modern coins in pocket change are commonly considered a burden by consumers, what does this mean for the future of numismatics? Those who enjoy collecting coins will continue to do so, but the general lack of rare and valuable coins in circulation may have an impact on the attraction of new collectors to the hobby, as most hobbyists often describe their interest starting by finding a unique and exciting coin in their pocket change. The Great American Coin Hunt was an excellent idea, as it temporarily re-invigorated the hobby by encouraging the release of fantastic coins back into circulation and brought back the nostalgia of simply finding a great coin in one’s pocket change instead of looking for one online, at a coin shop, or at an auction. More will need to be done, however, to draw new people into the hobby, as many younger collectors now describe their interest coming from coins that their relatives have passed on to them rather than discovering fascinating coins in their own change.
On a more positive note, will the United States Mint’s new 2019-W quarters, struck at the famous West Point Mint and released into everyday circulation, make a difference? Perhaps—Red Book senior editor calls them “one of the most exciting coin programs issued by the U.S. Mint in many years” and estimates their retail value to be $25 or more in average Mint State (with higher-grade “gem” examples selling in the hundreds of dollars). “As more collectors become aware of these coins, and realize they need them to complete their sets, demand should rise,” said Garrett.
To read the entire article by Oz Shy, please visit the website of the Federal Reserve Bank of Atlanta.