People have been predicting the extinction of cash for decades now. And we can thank the rapid rise of technology for this misconception. There’s no doubt that young consumers now have more payment options than any generation before them, with e-transfers, debit and credit cards, cheques, PayPal, Google Wallet, and a wide variety of other options now available to choose from. It seems like every year there are several new digital payment methods to try out.
And considering millennials are tech junkies who prefer computers to pen and paper, texting to phone calls, iPods to CD players, and GPS systems to maps, it seems natural that these young consumers would hop on board with digital payments in lieu of physical cash.
But the opposite is true. Millennials actually prefer paying with cash more than any other age group.
The Facts and Figures
Cash continues to play an enduring role in consumer transactions. In fact, young consumers still use bank notes and coins for 40% of all transactions.
The use of debit cards remains strong, but still at lower rate—25%. Credit cards, too, are only used 17% of the time for transactions. Electronic methods and cheques both only make up 7% of transactions and other payment methods represent less than 5% of overall transaction activity.
Smaller transactions under $10 in particular tend to warrant cash payments over digital payments while half of transactions under $50 are paid for with bills and coins. Other payment options are mostly used for higher-value purchases. For smaller purchases, cash remain the most convenient payment method.
While the number of cash transactions is high, physical money actually accounts for a small share of the overall consumer transaction value, coming in at just 14% because it’s most often used for smaller transactions. Electronic payments, on the other hand, account for 27% of the total transaction value, and cheques account for 19% of the total. In fact, the average value of a cash transaction is $21, which is quite low compared to the average $168 value for cheques and $44 value for debit cards.
Consumers also tend to use cash payments for specific purchase categories. It’s the first choice for most when it comes to person-to-person transactions or gifts, personal care supplies and food, transportation, entertainment, government and non-profit expenses, and medical, educational, and personal services. Cash is also the second most popular payment method for all other categories except for housing.
The Back-up Option
Although cash isn’t the first payment choice for all consumers, it still plays a significant role as a back-up plan for most. The majority of consumers who prefer to pay with debit or credit cards declared cash to be their second choice.
The Link to Income
The preference for paying with cash is connected to income. Those with a family income of under $25,000 tend to use cash more than plastic or electronic payment methods, while there is a steep decline in this preference for households that exceed $25,000 a year in income. Those with a lower income use cash payments for a wider variety of transactions and for bigger amounts; however, all income groups use cash approximately the same amount of times in a month.
Safety and Security
Another reason why cash is still king is the fact that it remains the safest option to use. Consumers are wary of security issues and data breaches that come with plastic and electronic payment methods. It can be risky to swipe your card at some stores. Wendy’s and Target recently became victims of data breaches, for example. The theft of sensitive personal information is a possibility when using digital payment methods, but is non-existent with the use of cash.
Cashless society? Far from it.