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The truth behind the use of cash

September 30, 2013 by Brendan Burge

The Federal Reserve System Cash Product office has recruited members of the public to participate in a research project called "Diary of Consumer Payment Choice." The focus of the research was to uncover the truth behind the use of cash and other forms of payment across demographic segments, payments size and location/type of payment. 

While the research is not yet complete, some interesting trends have emerged. These were shared in one of the most interesting and topical presentations at the recent ICCOS Americas conference held in Miami:

• cash is the dominant instrument for small value transactions;
• cash is a more versatile instrument in several smaller market segments;
• cash is everyone’s backup, and a critical component of the financial infrastructure;
• cash dominates small value payments, accounting for 65 percent of payments up to $9.99 and 45 percent of payments between $10 and $24.99;
• cash accounts for 66.6 percent of person-to-person payments (gifts and transfers);
• cash accounts for 50.3 percent of food and personal care payments;
• cash accounts for 42.8 percent of entertainment and transportation payments;
• cash accounts for 40.8 percent of government and nonprofit payments;
• cash accounts for 32 percent of auto- and vehicle-related payments;
• cash accounts for 30.1 percent of general merchandise payments;
• cash accounts for 25.6 percent of medical, education and personal payments;
• cash accounts for 16.2 percent of financial and professional payments;
• cash accounts for 7.5 percent of housing related payments.

During the presentation, the audience was asked to indicate by show of hands which demographic segment they believed used cash the most. Prevalent beliefs, marketing of non-cash payment and other payment-related anecdotal evidence would seem to indicate that cash is preferred by the older generation and declines with younger demographics. Surprisingly the reverse appears to be true:

• 18 to 24 year olds use cash 47 percent of the time;
• 25 to 34 year olds use cash 37 percent of the time;
• 35 to 44 year olds use cash 40 percent of the time;
• 45 to 54 year olds use cash 45 percent of the time;
• 55 to 64 year olds use cash 40 percent of the time;
• 65 year olds and older use cash 46 percent of the time.

Other interesting and sometimes surprising metrics were also shared:

• cash use is relatively flat across education levels;
• cash is everyone’s first or second choice of preferred payment type;
• use of cash for small value transactions (less than $25) is fairly flat across education type;
• use of cash for large value transactions (more than $25) is greatest with those of lower education (those with less than high school education use cash more than twice as often as those in all other education categories).

Further research is warranted and the cash product office is committed to continuing this research for a deeper review of the use and future of cash as a payment choice for the American public.

Read more about trends and statistics.

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