Annual Fed report indicates increase in demand for cash despite slight decline in usage by consumers

In a slight decrease from 2017, cash became the second most frequently used payment instrument in the nation next to debit cards, according to a new Federal Reserve report on the 2019 Findings from the Diary of Consumer Payment Choice.

The report shows that consumers used cash for 26 percent of payments in 2018, a four percentage point decrease from the previous year. Debit card and credit card use increased, making up 28 percent and 23 percent of payments, respectively.

Although the report shows a decline in the transactional usage of cash, demand for U.S. currency grew between the 2017 and 2018 Diary studies, resulting in a 7 percent increase in the value of currency in circulation worldwide, which is consistent with previous year-over-year growth. In the latest Diary report, 80 percent of survey participants reported that they keep cash on-hand.

“What the report tells us is that while usage of other forms of payment continues to grow, demand for cash remains strong, particularly for small value, in-person transactions,” said Mark Gould, Chief Operating Officer of the Federal Reserve Bank of San Francisco and Cash Product Director of the Federal Reserve System’s Cash Product Office. 

Consumers across the United States continue to use cash extensively for small value purchases. The report, based on data collected in October 2018, shows that cash was used for 49 percent of payments  less than $10 and 42 percent of payments less than $25. While cash remains a popular payment instrument, the 2018 Diary represents the first year cash was not used for the majority of transactions under $10.

The report also found:

  • Consumers are making more payments each month. On average, consumers made two more payment transactions per month in 2018 – a 4.9 percent increase compared to 2017.
  • Payment options are growing. Consumers have more payment options to choose from and are making cash payments slightly less than before. The average consumer made one less cash payment per month in 2018 than in 2017.
  • Young people use cash more than any other age group. The share of cash use among individuals under 25 years old is the highest of any age group at 34 percent. Individuals between the ages 55 to 64 and individuals over 65 used cash more than any other payment instrument, 31 percent and 33 percent of the time, respectively.
  • People make more in-person payments. In-person payments accounted for 73 percent of all transactions. Participants used cash for 35 percent of all in-person payments. Additionally, mobile phone payments have increased, going from 6.7 percent in 2017 to 8.2 percent in 2018.
  • Rural areas are more likely to make cash payments than urban areas. Credit card usage in urban areas is twice that of rural areas.

“The Diary of Consumer Payment Choice helps the Cash Product Office analyze consumer cash use and anticipate its ongoing role in the payments landscape,” said Gould. “It also helps us fulfill our mission by providing transactional data that may inform how we formulate and implement policies, operational guidance, and technology strategies for U.S. currency and coin services, both nationally and internationally.”

The 2019 report explores various aspects of cash usage, including detailed trends in cash usage, payment preferences, cash holdings by demographic cohort, and payment use by transaction characteristic and merchant type. A demographically-representative sample of 2,873 individuals participated in last year’s Diary.

About the Diary of Consumer Payment Choice

The Diary is a survey designed to study payment behaviors using a nationally representative sample of U.S. consumers. Participants are asked to record information on all transactions – purchases, bill payments, deposits, withdrawals, etc. – conducted during assigned, overlapping consecutive three day periods. The Diary of Consumer Payment Choice is a collaboration between the Federal Reserve Banks of Atlanta, Boston, Richmond, and San Francisco (Cash Product Office).

The Federal Reserve Bank of San Francisco (SF Fed) serves the public by promoting a healthy, sustainable economy, and supporting the nation’s financial and payment systems. With offices in Los Angeles, Seattle, Salt Lake City, Portland and Phoenix, the Bank serves the Twelfth Federal Reserve District, which includes one-fifth of the nation’s population and represents the world’s fourth-largest economy. As part of the nation’s central bank, the SF Fed informs monetary policy, regulates banks, administers certain consumer protection laws and acts as a financial partner to the U.S. government.