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U.S. Consumers Hold More Cash but Make Fewer Payments

Categories : Cash is a contingency and fall-back solution, Cash is also a store of value
May 11, 2021
Tags : Cash and Crises, Central Bank, Coronavirus, US
The latest Federal Reserve Diary of Consumer Payment Choice shows that in 2020, consumers made fewer payments and in particular less in-person payments. Consumers of all age and income groups have significantly increased their precautionary holdings of cash.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

The 2021 Diary of Consumer Payment Choice, carried out in October 2020, shows that consumer payment behaviour changed dramatically during the pandemic. Total payments, cash, and non-cash declined by 20%, mostly due to the drop in low-value transactions (under $25).  This disproportionately affects cash which historically accounted for the majority of small payments.

The key high-level findings are:

Fewer Payments and Higher Average Transaction Value

In October 2020, U.S. consumers made 34 payments per month, down from 39 payments in 2019. However, monthly spending increased to an average of $4,760 in 2020, up from $4,236 in 2019. This suggests consumers aggregated their purchases into fewer transactions, combining transactions for multiple products at one store or on one platform. In addition, the number of remote payments grew from 13% of all transactions in 2019 to 20% in 2020. A previous May 2020 survey showed that 63% of consumers did not make a single in-person payment between March and May 2020.

As a result, the share of cash in the payments mix decreased by seven percentage points in 2020, from 26% to 19%, a larger decline than experienced in any category over the past two years (see Graph 1).

Graph 1. United States: Share of Payment Instrument Use by Year, 2018-2020.Source: Federal Reserve Bank of San Francisco

Increased Cash Holdings During the Pandemic

The diary also shows their consumers increased their on-person – i.e., in their pocket, a purse, or wallet – holdings of cash from approximately $55 before the pandemic to $74 in 2020. The increase occurred for all adult age groups and household income levels (see Graph 2). For example, individuals between the ages of 18 to 24, who previously held the least amount of cash on hand, almost doubled their daily holdings, from $33 to $60, since the start of the pandemic. In a separate survey carried out in May 2020, the Federal Reserve concluded that the value of cash stored elsewhere – i.e., not on their person – was far greater for all groups than pre-pandemic amounts. On average, cash stored elsewhere nearly doubled, rising from $257 to $483.

Graph 2. United States: Average Daily Holdings by Age, 2016-2020.

Source: Federal Reserve Bank of San Francisco.

In conclusion, the report raises the question of whether the change in payment behaviour observed during the pandemic is permanent or temporary. Will consumers stick with digital payments, or will they switch back to cash for their low-value in-person payments as the US economy re-opens? It is still too early to say, but one early signal is the evolution of cash in circulation in the first months of 2021. Fed data shows that growth in cash in circulation has been accelerating since mid-March, three months after the number of new Covid-19 cases started declining sharply in the country (see Graph 3).

Graph 3. United States: Currency in circulation (weekly average), January-May 2021

Source: Federal Reserve Bank of St. Louis.



This post is also available in: Spanish