In the News

With prices rising, are people turning back to cash?

Geoff Riley

8th August 2022

The cost of living crisis might be causing people to hold higher cash balances as a way of keeping greater control of day-to-day living expenses.

New data from Post Office Counters has shown a sharp rise in people withdrawing cash from their accounts.

This is perhaps a small blip in the march towards a cashless society.

The use of cash money in the UK decreased significantly since 2016, especially during the coronavirus pandemic.

Many pubs for example now do not accept cash payments, likewise concessions at sports grounds.

But paying with a debit card, according to some behavioural economists, can lead to higher spending overall since swiping the card seems one step removed from handing over hard cash whereas with the latter approach, the amount spent is tangible and easier to monitor.

Of course cash pays no interest so the real value of cash is falling sharply as inflation heads towards 10 per cent. But deposit accounts pay a paltry nominal rate of interest - try finding a savings account that offers anywhere near 3 per cent.

So the opportunity cost of using cash for transactions is limited.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

© 2002-2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.