Despite Apple Pay buzz, cash is still popular

The coming after-Thanksgiving shopping season will no doubt highlight the growth of mobile payments, a trend that just received a big boost with the rollout of Apple Pay.

But despite the buzz around the iPhone-maker’s mobile wallet, a recent study points to a conclusion many may find surprising: cash is still popular.

“Consumers choose to use cash more frequently than any other payment instrument, including debit or credit cards,” according to a San Francisco Federal Reserve Bank paper published this year on the key role cash continues to play a key role in consumer spending.

The study presents some interesting insights.

For instance, in October 2012, “the average American consumer had 59 transactions, including purchases and bill payments, and 23 of these 59 payments involved cash,” the report said.

“At 40 percent, cash makes up the single largest share of consumer transaction activity, followed by debit cards at 25 percent, and credit cards at 17 percent,” the report said.

Another report finding stands out: young people are still fairly heavy users of cash.

“Contrary to conventional wisdom, 40 percent of 18 – 24 year olds actually prefer cash, the highest percentage of any age group,” the report said.

“At the same time, this age group also has the highest preference for debit cards. It is possible that a segment of younger consumers prefer cash because they have limited access to banking and other financial products and services, in part due to typically lower incomes in early adulthood.”

Economic status and access to financial services are also key.

“Those making less than $25,000 annually use cash for a much wider variety of transactions than do those with higher household incomes,” the report said. “Low income consumers use cash much more frequently for bill payments like housing than the average consumer. This likely is due, at least in part, to a lack of access to banking and financial products.”

The research paper was written by Barbara Bennett, Douglas Conover, Shaun O’Brien, and Ross Advincula, based on evidence from the Diary of Consumer Payment Choice Study, initiated in October 2012 by the Boston, Richmond, and San Francisco Federal Reserves. 

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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.