Why do people still use cash?

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Hanna Horvath, CFP®

Hanna Horvath, CFP®

Managing Editor & Certified Financial Planner™

Hanna Horvath, CFP®, is a certified financial planner and former managing editor at Policygenius. Her work has also been featured in NBC News, Business Insider, Inc. Magazine, CNBC, Best Company, and HerMoney.

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Does anyone use cash anymore?

Cash may seem like it’s going extinct, but this year the Federal Reserve reported there’s more cash in circulation than ever before. What does this mean for consumers?

Do people like cash now?

In short, no.

“We are surely moving to a cashless society,” said Kenneth Rogoff, a professor of economics at Harvard University and former chief economist at the International Monetary Fund.

A study by the Federal Reserve Bank of Atlanta found that debit cards replaced cash as the most used form of payment for in-person purchases for the first time in 2018. Debit cards were used for 34% of all purchases, while cash was only used for 24% of purchases.

The number of people with a mobile payment app on their phone also increased 40% to 60% from 2015 to 2018. Popular apps included Venmo, PayPal and Zelle. (Learn more about going digital with your money here.)

While a majority of buyers use other forms of payment to buy things, there are still those dedicated to using cash.

Why cash could still be king

There are a number of reasons some consumers favor cash over other types of payments. One is privacy.

“People use cash because they like the privacy of it compared to other forms of payments,” said Bart Brewer, certified financial planner and instructor at Ken Zahn. “Some are wary of increasing government intrusion into their lives.”

Some businesses only take cash. Stores may also be unable to accept card payments because of technical issues. Brewer said his local grocery store recently experienced a system outage. The only way to buy groceries was cash.

“It’s just a good idea to have it around,” he said.

Cash can also help consumers spend more responsibility. Having money in tangible form can help you recognize spending patterns and curb impulse purchases. This may make it easier to track expenses over time, said Michelle Buonincontri, certified financial planner. Consumers who use cash also won’t be subject to extra fees.

“I suggest that all my clients use cash as a strategy to get back on track with spending, and avoid cash-flow issues and overdraft expenses,” she said.

Cash also makes it easier to be generous.

“If you want to tip someone, or even spontaneously give something to someone down on their luck, it's pretty hard to do that with a credit card or a mobile app,” said Brewer.

How to switch to cash

Considering making the switch from plastic to paper? Try the envelope method. You set a limit for how much you’re going to spend in each budget category. Once you set limits, put that amount of cash in an envelope for all your purchases that month.

If the envelope method seems too drastic, consider switching to cash for discretionary purchases. It will give you a better sense of where your money is going. Use a budgeting spreadsheet (like this one) to track your purchases.

Image: Freddie Collins