In an era of unprecedented access to digital payment methods, cash is making a comeback, courtesy of the swelling cost of living.
A survey commissioned by Credit Karma and conducted by The Harris Poll in March showed 53% of adults in the US and 46% in the UK use cash more now than a year ago. That was 19 and 4 percentage points more, respectively, than respondents who said they don’t use it more. Roughly three in five cash users in both countries said using physical money makes them spend less.
Changing habits after decades of falling cash use speak to the enduring impact of the fastest inflation since the early 1980s. The squeeze is especially acute in the UK, where price gains remain above 10% and the central bank’s chief economist ignited online furor this week after saying Britons “need to accept” that they’re worse off.
“As the world is getting back to normal after the pandemic and prices are going up significantly, we see cash as being one of the most enduring ways of managing money,” said Courtney Alev, an associate director of product management at Credit Karma. “It really transcends generations and financial situations.”
To some extent, the reversing preferences are also a reaction to the proliferation of digital ways of paying — from Apple Pay to Venmo to touchless credit cards — that some consumers say make it too easy to blow through the budget. More than two-thirds of the 3,171 respondents in the Credit Karma survey said such payment methods made them spend more than they intended.
Younger people are tuning into the “cash-stuffing” trend embodied by TikTok videos featuring financial hacks like separating your spending cash into different envelopes to use for different expenses. Consumers are also taking to social media to push back against businesses that don’t accept cash.
“A lot of the theory on payments has been to remove friction,” said Natalie Ceeney, chair of Cash Access UK, which was set up by UK banks and building societies to promote widespread access to cash following legislation to stem its decline. “Actually, a lot of people want friction back.”
She said that studies point to a large increase in sales when consumer-facing businesses such as sports arenas switch to contactless payments. “One of the reasons is people are more likely to just tap and buy things without thinking, ‘Gosh, that’s a lot of money.’”
Emily O’Donnell from Lichfield in central England switched to using only cash in November after stumbling across a TikTok video on cash-stuffing. Before that, the 26-year-old had been living paycheck to paycheck. Since then, she’s cleared off £7,000 ($8,740) of debt and started saving for a house deposit. She also posts videos on the social-media platform about budgeting.
“The discipline came from creating accountability on TikTok and having budget binders that were very visual, as I’ve never budgeted before,” she said.
Underground Economy
Harvard University economist Kenneth Rogoff said the rebound in cash use may in part reflect increased demand for what he calls “underground economy services” — like paying a babysitter in cash to avoid tax. “It is quite possible that the underground economy grew during the pandemic and the cash use numbers reflect that,” he said.
Rogoff, author of The Curse of Cash: How Large-Denomination Bills Aid Crime and Tax Evasion and Constrain Monetary Policy, estimates that part of the economy accounts for as much as 10% of US gross domestic product, and more in Europe.
Credit Karma’s findings suggest the rebound in cash use from pandemic lows, documented by both the Federal Reserve and the Bank of England, might not be just a temporary blip. The uptick in cash use was especially pronounced among younger people, including Millennials and Generation Zs, the survey found. It comes as central banks around the world, including the Fed and the BOE, push ahead with plans to develop digital versions of their currencies.
The BOE said in October it has seen a “sustained, if partial, recovery in cash use” since the pandemic and that banknotes in circulation remain close to a historic high. Notes and coins remain vital among lower-income households struggling to navigate soaring costs for everything from milk to mortgages.
UK lender Nationwide Building Society in January said more than 30.2 million withdrawals were made from its ATMs last year, a 19% jump from 2021.
The durability of cash’s resurgence may depend in large part on how well central bankers succeed in taming stubbornly high inflation. But some fintech companies are already trying to adapt, introducing features that help customers set limits on spending.
Lisa Spantig, assistant professor of experimental economics at Aachen University, said that while she considers frictionless payments “generally beneficial,” some consumers might need help in making informed decisions. That might ultimately require regulation “as the providers of digital payments benefit from high spending rates,” she said.
“For example, creating a system that alerts you when you are about to make a purchase in a budget category that you are trying to reduce could be very powerful, especially in comparison to the ex-post budgeting that is currently available,” Spantig said.
