While cash is often viewed as a safe haven, from a purchasing power perspective it is one of the riskiest asset classes around. The reason for this centres around inflation and the impact this has on the spending power of your savings.
Cons: Less Secure. Cash is less secure than a credit card. Unlike credit cards, if you lose physical money or have it stolen, there's no way to recover your losses.
The Benefits of a Cashless Society
They don't have to deposit as much cash every day and can more easily balance their books, since electronic-transfer-based sales can immediately and seamlessly enter computer systems. If you're not carrying hundreds of dollars in cash, you're less of a target for robbery.
To many economists and policymakers, cash is a problem: cash transactions are harder to tax, it can be used by criminals, and those who keep their savings in it miss out on interest.
One of the biggest risks associated with holding excess cash is the potential for inflation to erode its value over time. As prices rise, the purchasing power of cash can decrease, meaning that holding onto too much cash can actually result in a net loss over the long term.
While cash isn't disappearing entirely, data from Marqeta shows that both consumer attitudes and habits are shifting towards a less cash-dependent economy. According to Marqeta's 2024 State of Payments Report, nearly three-quarters of U.S. consumers aren't concerned about moving towards a cashless society.
Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.
Inflation Is Eating Away at Your Funds
According to the Bureau of Labor Statistics, the average rate of inflation from April 2023 to April 2024 was 3.4%. If you've been keeping your money in a savings account with a lower yield than the rate of inflation, you should switch over to a higher-yield account.
Just: The Bible says absolutely nothing about predicting a cashless society, as some people claim. And in fact, if it did, the closest passage to anything that you could call a “cashless society” is not from the Book of Revelation, but it's from Isaiah, Chapter 55.
Cash payments pose risks such as theft and loss, as physical currency can be easily stolen or misplaced.
Negative cash flow is when your business has more outgoing than incoming money. You cannot cover your expenses from sales alone. Instead, you need money from investments and financing to make up the difference. For example, if you had $5,000 in revenue and $10,000 in expenses in April, you had negative cash flow.
One reason is if you die, your cash value goes to the insurance company, not your beneficiary. Since the insurance company is investing it for you (and they're not good at investing) and they charge a ton of fees, returns on cash value life insurance are low.
The benefits and risks of cash
Cash is available when you need it and, unlike stocks, there's little risk to principal, especially since most savings and checking accounts, CDs and money market deposit accounts are FDIC-insured for up to $250,000 per depositor.
Analysis from Barclays Investment Bank, meanwhile, predicts that the global transition from cash to digital payments would reach a tipping point moment in 2025, when absolute cash usage would decline from 41 per cent in 2019 to 20 per cent by 2030.
Banks face fines if they fail to provide free access to cash withdrawals for consumers and businesses, the Treasury has confirmed.
It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend. A locked, waterproof and fireproof safe can help protect your cash and other valuables from fire, flood or theft.
As a general rule, if you withdraw funds before age 59 ½, you'll trigger an IRS tax penalty of 10%. The good news is that there's a way to take your distributions a few years early without incurring this penalty. This is known as the rule of 55.
In the model of Gale and Yorulmazer, banks hoard liquidity to protect themselves against future liquidity shocks (precautionary motive) or to take advantage of potential sales (strategic motive).
The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.
The big four banks have reassured customers they will maintain in-branch cash services, following Macquarie Bank's unprecedented move to phase out cash and cheque services entirely. Commonwealth Bank, ANZ, NAB and Westpac all confirmed on Friday that there are no current plans to go cashless.
China's cashless evolution is a remarkable story, as the country transitioned in less than two decades from a cash-first society to one with an 86% mobile payments penetration rate.
As people move toward more electronic or digital forms of payment, it might seem like paper money is on its way toward obsolescence. But experts say that cash will always be around.
In 2023, Sweden will become the first cashless society in the world, with its economy going 100% digital. According to the Swedish Central Bank, already now, nearly 80% of the country's residents use cards for conducting purchases. Overall, 58 % of transactions use payment cards, and only 6% are made in cash.