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Turkey: Financial Literacy and Cash Holdings

Categories : Cash and Crises, Cash generates security, Cash is also a store of value, Cash is the most widely used payment instrument
August 8, 2022
Tags : Financial literacy, Store of value, Transactional Demand, Turkey
A new paper by the Central Bank of Turkey found that financial literacy reduces cash's transactional demand but increases its precautionary demand as a store of value, leading to an expansion of cash in circulation.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

Cash Comprises 89% of Retail Payments

A recent paper 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 diary and a questionnaire covering socio-demographic characteristics and payment 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 safe – considered as precautionary holdings.

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 circulation.


This post is also available in: Spanish