Using more cash

Date posted: May 26, 2011

There are a number of ways we can pay for things — from credit cards, to debit cards, to checks, to cash. N.C. State University economist Mike Walden outlines how these payment methods have shifted in recent years, especially during the recession.

“People are actually using more cash for more transactions today. And I think there (are) a couple of reasons for that: One, using cash is cheap. And what I mean by that, if you’re going to take your cash and invest it in something like an interest-paying checking account or a short-term CD, you’re not going to earn very much, because short-term interest rates are very low.  So, the opportunity costs, as economists call it, of using cash (are) very low.

“Secondly, the cost of using many credit cards and, indeed, some checking accounts have been going up. And so I think people are more conscious today about not overusing those accounts. And, again, that moves them toward using cash, where they know, ‘Hey, I can only spend what I have in my pocket.’

“And then, lastly, during recessions, what happens? Well, people get fearful. They fear for the future. And although we know that most checking accounts and savings accounts are certainly insured, still, there’s that little voice in your head that says, ‘You know what, I better keep … more of my money in cash or more of my assets in cash.’ So, I think there’s that factor that plays in here.

“But there’s no question that cash is, really in some sense, king today. I think it will begin to slide if we get an improved economy.”

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