When it comes to cash, 28-year-old Gino Pascucci of Reno, Nevada, is out of the loop.
“I didn’t even know there was a new hundred-dollar bill out,” he says, referring to the new Benjamins the Federal Reserve released last year. Pascucci, who relies on plastic and digital payments, has never written a check in his life. He pays for his haircuts through text messages.
Pascucci is one of many who have started to migrate away from cash. About one in four millennials carries less than $5 cash on them seven days a week, according to a 2014 study by the Independent Community Bankers of America. Almost three-quarters of millennials also said that mobile banking was “very important” to them.
Because millennials represent about a quarter of the U.S. market, according to U.S. Census data, this migration away from cash could affect how many in the country think about spending and saving.
“We haven’t seen such a seismic shift in payment as we’re seeing right now,” says Jason Dorsey, chief strategy officer for The Center for Generational Kinetics, which co-sponsored the community banking study.
A different kind of safety net
One reason millennials don’t carry cash is because they see it as a liability rather than a safety net. Unlike credit or debit cards, which can be canceled, there’s little hope for recovering stolen paper currency.
“I’m worried I’ll leave my purse in a cab or hanging on the back of a chair and then I’ll never see that money again,” says Meagan Rhodes, 27, of Albuquerque, New Mexico, in an email. All she carries is her iPhone, credit card, debit card, lip gloss and driver’s license, she adds. She takes comfort in knowing that if these items are lost or stolen, they can be easily replaced.
For millennials like Rhodes, security advancements for non-cash payment systems are good news. By October 2015, most retailers will have EMV chip readers, which will eliminate most credit card fraud in the U.S. by authenticating purchases through cryptographic algorithms. Tokenization, which allows you to make purchases without giving out your credit card number, will also make future digital payments more secure.
But despite these new measures, paying digitally might also encourage consumers to spend more.
For those shopping with credit, price is only a secondary concern, according to a 2011 study published in the Journal of Consumer Research; with cash, people become more budget-conscious. The study, which surveyed 59 undergraduates, suggests that overspending might become more of a problem as more Americans go paperless.
Some millennials, including Pascucci, disagree.
“When I have cash, I feel like it’s much easier to spend, like it’s burning a hole in my pocket,” Pascucci says. Several of the millennials NerdWallet talked to agree on this, noting that apps and credit card statements make it simple to track spending, whereas cash requires more manual recordkeeping.
A survey by global management consulting firm Accenture shows that this interest in tracking budgets through digital means isn’t unique to millennials; almost half of 4,000 survey respondents in both the U.S. and Canada said they were “interested in real-time and forward-looking spending analysis”– and that’s easier to do with electronic payment records than with receipts from cash purchases.
A paperless future
Dorsey, who identifies as a millennial, says that it’s exciting to watch as his generation shifts away from paper currency. In the future, he adds, we might be living in a cashless society.
“When we have kids, they might not know what cash is,” he says. “They’ll be looking at it in a museum.”
But until that happens, there are times when carrying a few bucks is just easier, especially when you’re shopping in a place with a credit card minimum, notes Rhodes.
“It’s a pain when all you want is a $1 coffee and end up having to buy six bagels to be able to use your card,” she says.
No cash illustration via Shutterstock.