Wait, Do Young Americans Really Hate Cash?

Last week I wrote an article for this website titled Young Americans Hate Cash. It was based on a study by CreditCards.com. This week I got an e-mail from John Williams, president of the Federal Reserve Bank of San Francisco, with the subject line: Do “Young Americans Hate Cash”? His e-mail pointed me to a couple of articles by his bank that seem to point in the opposite direction.

I poked around hoping to explain the seeming disagreement between two reputable sources, and if possible figure out which one is right.

First, look at the two charts that appear to contradict each other.

The first one is from CreditCards.com, a unit of Bankrate.com. It shows that people aged 18-29 have the least preference for cash of any age group.

And here’s a chart from an April report (PDF) by the San Francisco Fed, which shows 18- to 24-year-olds with the greatest preference for cash:

Federal Reserve Bank of San Francisco

Assuming both surveys were done correctly, what could explain the difference? For one, the studies covered slightly different age groups (18-24 for the San Francisco Fed, 18-29 for CreditCards.com), and different purchase amounts (all amounts for the San Francisco Fed, less than $5 for CreditCards.com).

In response to my inquiry, San Francisco Fed researchers did a special data run for purchases less than $5 by 18- to 29-year-olds, closely matching the CreditCards.com survey. They found that young people were indeed less likely to use cash than older people for sub-$5 purchases—about two-thirds of their purchases were with cash, vs. 78 percent for adults overall.

Federal Reserve Bank of San Francisco
They even prepared this small chart for me (right).

As the chart below shows, young people use cash for a larger percentage of their overall transactions because they tend to have lower

Federal Reserve Bank of San Francisco
incomes and fewer big-ticket tabs, which are more likely to be paid with credit cards or checks.

Regardless of age group, cash came up bigger in the Fed study than in the one by CreditCards.com. Why? Probably because people tend to forget about their smallest transactions, which are those mostly likely to be cash. The CreditCards.com survey asks people to recall what they usually do, while the San Francisco Fed study (in conjunction with the Richmond and Boston Feds) had them keep a detailed diary of every transaction, large and small, minimizing the chance of forgetting.

One other possible factor: Who was interviewed. The Fed survey’s sample is representative of the entire adult population. The CreditCards.com survey covers only people with credit cards, notes Matt Schulz, a senior analyst at CreditCards.com.

If you have a credit card, you probably also have a debit card. Young people who are qualified to carry plastic like to use it, even for small purchases, more than their elders do. The CreditCards.com survey captures that. But some young people don’t have debit or credit cards yet, or they’re maxed out, so they’re forced to use cash. That shows up as their “preference” in the San Francisco Fed study. It could be that they “prefer it” because it’s their only option. (Update: The San Francisco Fed says 94 percent of 18- to 29-year-olds have a debt, credit, or pre-paid card, vs. 99 percent of 30- to 49-year-olds.)

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