Consumers switch to cash amid high inflation in US and UK

Many are also using methods such as 'cash-stuffing' to better manage their money, survey finds

The increase in cash use is more pronounced among younger people, according to a survey by Credit Karma. Getty
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Consumers in the UK and US are increasingly switching to cash to better manage their finances and cope with the cost-of-living crisis, according to a study by personal finance platform Credit Karma.

Fifty-three per cent of adults in the US and 46 per cent in the UK are using more cash compared with a year ago, as rising prices force them to reduce their spending, the survey found.

The increase in the use of cash is more pronounced among younger people, including millennials and Generation Z, according to the survey, which was conducted in March and polled 2,118 and 1,053 adults in the US and UK, respectively.

Many consumers are adopting new habits to better manage their money, such as cash-stuffing, which involves setting aside physical cash in envelopes for different spending categories at the beginning of each month, the survey said.

“Cash can be a great tool for budgeting and saving money, especially if you’re someone who tends to overspend when swiping using debit or credit,” said Courtney Alev, consumer financial advocate at Credit Karma.

“Whether using the cash-stuffing method or simply pulling out a set dollar amount each paycheque to ensure you’re not overspending, make sure you’re still doing the work to build your credit. That can be as simple as setting up monthly subscriptions on one credit card and paying it off at the end of each month or using one card to pay for fuel expenses.”

Inflation in the US slowed to 5 per cent on an annual basis in March as the Federal Reserve’s interest rate increases helped to ease price pressures on households and businesses.

March was the ninth straight month that inflation decreased in the US, after peaking at 9.1 per cent in June last year. Still, inflation is running well above the Fed’s 2 per cent target.

The cost-of-living crisis is especially acute in the UK, where inflation hit 10.1 per cent in March, down slightly from 10.4 per cent in February.

About 69 per cent of Generation Z respondents in the US said they rely on cash more compared with a year ago — more so than Generation X (47 per cent) and Baby Boomers (37 per cent) — and use it for a majority of their purchases, according to Credit Karma.

Groceries, clothing and non-essentials, such as coffee, other one-off purchases and takeaways, are the top categories in which Generation Z uses cash as a payment method.

Among Generation Z in the US who use cash to pay for purchases, 59 per cent said they do so as a way to budget their money, while 64 per cent said they spend less money when they pay with cash, the survey found.

Meanwhile, 18 per cent of Generation Z felt more in control of their spending when using cash and 19 per cent said it made them more thoughtful.

However, 20 per cent said they are using cash more often because it feels like “free money” because there is no digital trace of the transaction.

More than half of Generation Z respondents in the US also said they rely on cash-stuffing to save and budget.

Similarly, 61 per cent of Britons aged 18 to 34 said they had increased their cash usage in the past year, compared with 47 per cent of respondents aged between 45 and 54, and 33 per cent for those aged above 55, according to the poll.

Thirty per cent of respondents in the UK said they are using cash to be more mindful of their spending, 18 per cent want to avoid racking up debt and 11 per cent do not want to accrue interest and banking fees on purchases.

“Using cash can be a great way to budget and limit dependence borrowing,” said Akansha Nath, head of partnerships at Credit Karma.

“However, when it comes to building credit, it’s actually important to use credit. Using cash doesn’t help a person build a paper trail of their financial history, which is particularly important for younger adults who may be thinking about accessing credit for the first time for things like mobile phone contracts, car finance packages and even mortgages.”

Updated: May 04, 2023, 9:28 AM