Quick, how much cash is in your wallet? If you’re like the average American, barely enough for a couple of movie tickets: The median consumer carries just $22.
A handful of people roll bigger. Roughly one in five people carry more than $100. One in twenty carry a pickpocket’s dream—$100 bills—according to a new study by Claire Greene and Scott Schuh of the Federal Reserve Bank of Boston. They were trying to shed light on some of the biggest mysteries about U.S. currency: Where is it all? And why do certain people carry so much more than everyone else?
The answers matter to tax collectors, who lose billions each year to the underground cash economy, and to banks and tech startups betting that the future is cashless. So far the evidence suggests the contrary. The amount of cash in circulation keeps rising. There’s $1.2 trillion in cash outside banks, up 20 percent since 2011. Use of credit and debit cards is growing, too, but they’re mostly taking over where checks left off. Cash is still used for 40 percent of all purchases, and from 2003 to 2012 the amount of cash pulled from ATMs rose 32 percent faster than inflation.
Most of this cash use is impossible to track. That’s one of cash’s virtues for those hiding from the police, the IRS, marketers, and data miners, and in the U.S., many assume these $100 bills are mostly used by criminals or tax evaders. Some, such as Harvard University economist Kenneth Rogoff, have suggested that the $100 bill be taken out of circulation.
But in Greene and Schuh’s survey, 5.2 percent of consumers readily admitted to carrying one or more $100 bills. The researchers found no evidence these people were anything but law abiding, Schuh says. There's a less nefarious reason the share of $100 bills in circulation has doubled in the past 20 years. It takes more $100s to make a big purchase than it used to: Inflation has cut the value of the $100 bill, the largest bill in circulation, by 45 percent over roughly the same 20-year period.
In fact, people who carry around lots of cash aren't that different from anyone else, with one important distinction: They make more money. Consumers who make more than $75,000 are about 50 percent more likely to be carrying around $100 than those who make less than $35,000. That might not seem surprising—more money in the paycheck means more in the wallet—but it undercuts the idea that wads of cash are mainly for poor people who don’t have access to banks or credit cards. In fact, holders of more than $100 were more likely to have a credit card, though they tended to pay it off every month. They were also more likely to be older than 55 and have more than a high school education. Beyond those, the study concluded, “other demographic factors are not statistically significant.”
Most people use cash only to buy small things, and people with lots of cash are no exception. When spending their $100 bills, they’re usually asking a clerk to make change. The Boston Fed study tracked daily spending and found that 78 percent of $100 bills were used on purchases of less than $100. One-third of the time, they were using a $100 bill to buy less than $20 of stuff.
The desire to carry around wads of cash may be as much a quirk of personality than anything else. Lots of cash in your wallet saves you an extra trip to the bank, and if you’re carrying lots of cash, carrying hundreds makes for a slimmer wallet. Peeling off 30 or more $20s for dinner at Per Se isn’t really any less annoying than counting out 30 $1s for a six-pack and a couple of pizzas. Or so I imagine.