A study by the British Retail Consortium (BRC) has some in the FinTech space a flutter due to a surprising find: Cash usage grew for the first time in a decade, rising to 19% of all transactions (from 15% in 2021).
Many people deduced, amid the shift to digital payments during the COVID-19 pandemic, that cash would be abolished or at the very least – die slowly. A few headlines from 2021 include: "Cash will soon be obsolete. Will America be ready?" And "These are the last days of cash. We might miss it when it’s gone."
And fair enough. During the pandemic, many Canadians avoided touching cash due to the fear of virus transmission, plus there is a general societal movement towards digital payments.
However, in Canada today, there’s been a small rebound back to using cash, in fact, according to Payments Canada, cash users are back at pre-pandemic levels.
Why do Canadians Prefer Cash?
According to the study, nearly one in three Canadians still use cash for day-to-day purchases, such as making a small purchase, paying expenses, or paying a friend or family member.
Nearly one in four are using cash for daily purchases, and emergencies. Meanwhile, over 30% of Canadians hold cash for emergencies only. And not surprisingly older Canadians are significantly more likely than other age groups to be using cash in this multi-purpose way.
Canadians who use cash like it because it’s fast, widely accepted and allows the user to access their own funds and not borrow. Canadians also feel more ‘spend guilt’ using cash.
Is Budgeting with Cash Easier?
The last two reasons (allows the user to access their own funds and not borrow and feeling more ‘spend guilt’ using cash) are budgeting factors.
Rich Widdifield, Senior Financial Planner, Assante Capital Management Ltd. says this makes sense. Cash is more tangible, and some people utilize it as a budgeting tool.
“It’s harder to pay a $150 bill with a few twenty-dollar notes versus using your card,” he says. “It adds awareness around spending money.”
Widdifield says that when budgeting the best tool is to track your spending. If you want to use cash that’s fine. But it’s just as simple with a credit card or debit card. Banks do a decent job of categorizing spending and credit cards provide a detailed statement every month.
“Even if you can track 80% of your spending it will help you budget and help your financial planner with your overall plan,” Widdifield says.
Concerns about Tough Times Driving Cash Demand
And why are we talking about budgeting? The economy of course. In times of high inflation rates and general economic unease people tend to turn to tried and true budgeting tactics, such as cash.
Therefore, it makes sense that cash is trending upwards as more Canadians are tightening their belts and trying to ride out high inflation. Canadian investors are awaiting the latest update with Wednesday's Bank of Canada announcement. In the U.S. the economy ispredicted to see its rate of growth slow in 2024, but no recession is expected yet.The situation on the ground, however, is something to keep an eye on.
The Economy and Canadian Debt in 2024
In Canada, “I am definitely noticing that things are tighter for clients,” Widdifield says. People are trying to get ahead of higher interest rates and higher mortgage rates.
Mortgage rates are something that will likely stay in the spotlight this year. With 31% of all mortgages in Canada set to renew within the next 18 months – meaning that 3.4 million Canadians have a mortgage set to renew by March 2025.
“It could get ugly for many Canadians,” he says.
Widdifield’s clients are also encountering things like travel inflation where hotels in many cases seem like they are double the price.
It will likely be a bumpy year, but there is one silver lining for financial planners: While guiding clients through turmoil and trends it is an opportunity for advisors to show value.
Morningstar analysts believe it’s all about turning adversity into an advantage. Although, we don’t truly know if the cash rebound is here to stay, or what the budgeting outcomes for all Canadians will be – download the 2024 outlook for further insight.
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FAQs
In a world of rising prices and financial uncertainties, consumers are returning to cash as a reliable and tangible means of managing their money. UK Finance has reported that the number of payments made using physical cash in 2022 surged by a remarkable 7%.
Will cash make a come back? ›
However, official statistics suggest cash could be making a comeback. Payments technology company Waave CEO Ben Zyl said “cash nostalgia” reflected the fact that people liked the feel of money and tended to spend less when paying with cash.
Is cash going to be obsolete? ›
If it's been a long time since you pulled out actual dollars and coins to pay for something — here's a conversation for you. It might seem like cash is slowly becoming obsolete. But, Brett Scott says it's a false narrative that we're all pining for a cashless society.
Is the use of cash increasing? ›
New data from Nationwide shows that cash usage continues to rise as many households respond to the cost-of-living crisis by budgeting with physical money. That data also shows where the building society is the last remaining branch in town, the growth in usage is at its most pronounced.
Will there be a cashless society? ›
Is the cashless society really coming? Despite the rapid development of convenient, seamless digital payment methods, the 100 per cent cashless society remains a distant prospect. Cash is a trusted, reliable and essentially secure way to spend, and still adds up when it comes to straightforward everyday budgeting.
Will cash be used in 2030? ›
Analysis from Barclays Investment Bank, meanwhile, predicts that the global transition from cash to digital payments would reach a tipping point moment in 2025, when absolute cash usage would decline from 41 per cent in 2019 to 20 per cent by 2030.
Why are people going back to cash? ›
"Many older people view cash as the most reliable and straightforward way to pay for goods and services, as well as an effective means of managing their weekly budget when money is extremely tight.
How long until cashless society? ›
Physical currency isn't becoming obsolete any time soon, so it's important to weigh up your options before deciding to go fully cashless in 2024. Ensuring you can accept some cashless payments though, is essential to keeping with today's trends and customer expectations.
Is the USA going cashless? ›
The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.
Can cash become worthless? ›
Although paper-based currencies are becoming less popular, they will likely stick around for the foreseeable future. Dollars and cents may become harder to use, but as with many obsolete technologies, there are enough users to ensure demand doesn't disappear completely.
Top Five Countries Most Reliant on Cash
- Romania: With 78% of all payments using cash, Romania still heavily relies on cash daily transactions every business day.
- Egypt: With nearly 70% of the country not using a bank account, Egypt's citizens regularly use cash.
Cash is the most commonly used form of payment, with 67% of respondents favoring it, demonstrating its enduring appeal for physical transactions. Debit cards (42% using chip and 35% swipe) and credit cards (35% using chip and 26% swipe) also remain popular.
Is there any benefit to keeping cash? ›
Manage unexpected expenses without stress, for example, if equipment needs unexpected repairs, cash is available without the need for financing. Minimize the risk of any market fluctuations, changes in interest rates or the need to borrow.
Which country will go cashless? ›
Finland and the UK are top–ranked to become cashless societies as well. Poland, on the other hand, has scrapped plans to limit cash payments to ensure freedom of choice. In the Asia–Pacific region, Australia, China, Hong Kong, India, Japan, Korea and Singapore are identified as frontrunners in digital payments.
Is China cashless? ›
“China is one of the top countries for using cashless payment systems, but penetration is not 100%,” says Sara Hsu, an associate professor at the University of Tennessee, specialising in supply chain management. “Elderly Chinese still often prefer to pay with cash and some struggle with using mobile payments.”
Who would suffer in a cashless society? ›
The elderly members of society are at particular risk, as they are often not confident using digital payment methods or online banking services.
Will cash eventually disappear? ›
We have been issuing banknotes for over 300 years and make sure the banknotes we all use are of high quality. While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon.
Does cash come back? ›
In a world of rising prices and financial uncertainties, consumers are returning to cash as a reliable and tangible means of managing their money. UK Finance has reported that the number of payments made using physical cash in 2022 surged by a remarkable 7%.
Will cash be a thing in the future? ›
Although paper-based currencies are becoming less popular, they will likely stick around for the foreseeable future. Dollars and cents may become harder to use, but as with many obsolete technologies, there are enough users to ensure demand doesn't disappear completely.
A study by the British Retail Consortium (BRC) has some in the FinTech space a flutter due to a surprising find: Cash usage grew for the first time in a decade, rising to 19% of all transactions (from 15% in 2021).