I hope you all had a wonderful holiday season surrounded (virtually counts) by your love ones, and Happy New Year! In the first Money Matters column of the year, I want to tackle something I’ve been hearing discussion about you may be noticing too. Since the COVID-19 pandemic started, many businesses have decided to not accept cash for transactions to reduce COVID-19 risk to employees. This movement is causing and will continue to cause problems, especially for people in this country who are unbanked. Without cash, these individuals will be unable to access to certain (most?) goods or services.
According to the Federal Deposit Insurance Corporation (FDIC), around 7.1 million American households didn’t have a bank or credit union account in 2019. Even though this trend had been decreasing in the past years, the pandemic has increased the number of unbanked Americans. This is due to the loss of income people have experienced during the economic crisis that has occurred during the COVID-19 pandemic.
Out of the 7.1 million people who are unbanked, nearly 14% are Black households and 12% Hispanic households, which is a high rate compared to less than 3% of white households. This fact shows how minorities are usually in a disadvantaged position by the system, increasing the racial wealth gap. Additionally, getting banked carries costs that low-income people do not have the capacity to cover.
Besides the fact being a cashless society is a problem that will affect unbanked the population by keeping them out of the market, there are other reasons this does not seem like a good idea:
- Electronic payments may expose your privacy. Even though you may trust the company or organization you are giving your personal data, information floating around internet could end up in the wrong hands. Hackers and electronic thieves can access your information and steal not just your info but also your money.
- Some payments may equal extra fees. It is not uncommon for companies who develop electronic payment services and other transactions usually charge fees to give you access to them. You do not want to expend extra money unless you need to.
- Increasing the income inequality gap. Low-income populations will experience more difficulties accessing the banking system and the technology tools needed to participate in a cashless economy. Furthermore, their welfare will be compromised, which increases the income inequality gap.
- People tend to overspend. Usually when someone pays with cash, she is more conscious of her budget. Nevertheless, when spending with a credit card or any electronic payment, it is easy to spend without awareness and we tend to overspend. This also may increase the amount of debt.
In conclusion, turning into a cashless society could be seen as an easy option nowadays given the technology available. However, this is not the case for all people living in this country, particularly those who have no or low incomes. Many of our friends in this predicament are already struggling to make it until the end of the month, and with a cashless society, the problem will only get worse. When you hear people talking about the convenience of a cashless society, I hope this gives you enough information to share with them, your friends and family.
I look forward to meeting you back here next month with new economic topics to be discussed. If you have questions for me about economics, send an email to email@example.com and I’ll answer it!