Turkey: Financial Literacy and Cash Holdings
Chair, CashEssentials
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CashMoney in physical form such as banknotes and coins. More Comprises 89% of Retail Payments
A recent paperSee Banknote paper. More reports the results of the “Methods of Payments Survey” (MPS) carried out by the Central Bank of Turkey in 2020, which includes a four-day payment diaryAn increasingly used instrument by central banks, which consists in asking a representative sample of the population to record for a certain period of time all their transactions, as well as the payment method used. Payment diaries provide a snapshot of the use of different payment instruments. They are, however, a costly tool and do not provide real-time results, but are useful for comparative purposes. More and a questionnaire covering socio-demographic characteristics and paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More habits. Per the survey, cash comprised 89% of the volume of all retail transactions and 75% in value terms. The value of the transaction is one key determinant, and the share of cash decreases with an increase in the transaction amount. Another determinant is the amount of cash held on hand. Consumers with higher cash balances have a higher propensity to use cash.
The questionnaire includes two questions on cash holdings. It distinguishes between ‘cash on hand,’ i.e., carried in the respondent’s wallet or on their person – which is viewed as transactional demand – and ‘cash stored elsewhere,’ whether at home or in a safeSecure container for storing money and valuables, with high resistance to breaking and entering. More – considered as precautionary holdingsBanknote demand motivated by the store of value function of banknotes, for saving purposes or as a precaution for uncertainties. See Hoarding. More.
On average, people carry 209 Turkish liras (TRY, or USD 11.75) on hand and TRY 1,329 (USD 74.73) elsewhere. The amount of cash stored elsewhere varies more significantly with socio-demographic characteristics than cash on hand. The three main determinants are gender (men have more than twice the amount of cash stored elsewhere than women); age (over 65s hold 2.5 times more cash than those in the 16-24 age group); and household income (the wealthiest quartile has three times more cash than the lowest income quartile).
Financial Literacy Decreases Cash Spending but Increases Precautionary Holdings
While there is no academic consensus on measuring financial literacy, the report uses the ‘Big Three’ method (Lusardi and Mitchell 2011), which assesses basic knowledge of interest rates, inflation, and risk diversification.
The report then explores the relationship between financial literacy and cash holdings in Turkey. The authors conclude that the financially literate tend to hold less cash on hand and store more elsewhere. In other terms, the financially literate spend less cash but have higher precautionary holdings.
In terms of policy, the authors emphasize that financial literacy campaigns may reduce cash usage at the point of sale but could also lead to an increase in precautionary demand and, consequently, the overall value of cash in circulationThe value (or number of units) of the banknotes and coins in circulation within an economy. Cash in circulation is included in the M1 monetary aggregate and comprises only the banknotes and coins in circulation outside the Monetary Financial Institutions (MFI), as stated in the consolidated balance sheet of the MFIs, which means that the cash issued and held by the MFIs has been subtracted (“cash reserves”). Cash in circulation does not include the balance of the central bank’s own banknot... More.
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