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Kristin Murphy, Deseret News
Sarah Smith shows the categorized wallet she uses to follow Dave Ramsey's cash-only envelope system at home in Riverton, Utah, on Monday, April 8, 2019.

SALT LAKE CITY — They have a wallet full of cash, but John and Sarah Smith wouldn’t be able to pay for their meals with a twenty-dollar bill at some restaurants.

That’s because some trendy eateries like Sweetgreen and Chopt, along with other retail businesses, have decided it’s easier to process credit and debit cards and payment apps, so they've stopped taking cash.

In doing so, these businesses are helping to bring about a marketplace that many economists want, but others dread: a totally cashless society.

Paper currency, some economists argue, enables crime, money laundering and tax evasion. Phasing out physical money would allow banks the option of having negative interest rates, which can stimulate growth and ramp down inflation, they say.

Kristin Murphy, Deseret News
John Smith dances with his daughter Delilah at home in Riverton, Utah, on Monday, April 8, 2019. The Smiths follow Dave Ramsey's cash-only envelope system.

But it's technology, not the wishes of economists, that is behind the change in how Americans are paying for goods. Only about one-third of transactions in the U.S. are in cash, and the percentage drops to 21 percent among people in their 20s and 30s.

That makes the Smiths, who live in Herriman, Utah, poised to be outliers in an increasingly digital marketplace as they only use cash.

They do so because they believe that this practice helps them keep control of their money and make better financial decisions. It also gives them bargaining power when making a big purchase, said John Smith, who once bought a car with $10,000 in cash.

Joseph Tolman

While the Smiths use cash because they prefer it, other people use cash because it's all they have, which is why some are concerned about how a cash-free society would affect low-income people and the estimated 14 million Americans who don't have bank accounts.

"There are pros and cons, but if we were to just implement a cashless society with the current system, it would be pretty negative for low-income people," said J. Michael Collins, faculty director of the Center for Financial Security at the University of Wisconsin, Madison.

That said, many people believe a cashless society is coming and could arrive before the millennials turn gray. Sweden and other countries that are changing more quickly than the U.S. offer a glimpse of how things could change — and how the tooth fairy operates when cash becomes scarce.

Cash and spending

Critics of cash argue that physical money is an enabler of immoral activity on a large scale. "There is little question that cash plays a starring role in a broad range of criminal activities, including drug trafficking, racketeering, extortion, corruption of public officials, human trafficking, and of course, money laundering," wrote economist Kenneth S. Rogoff in his 2016 book "The Curse of Cash."

Nearly 80 percent of American currency is in the form of $100 bills, according to the government. Most of this money is believed to be overseas or circulating in the U.S. in the underground economy, since to account for it, every American family would have to be hoarding $13,600 in $100 bills, according to Rogoff, former chief economist of the International Money Fund.

In fact, the average American carries about $60 in cash, according to the most recent survey of consumer behavior conducted by the Federal Reserve Bank. (Older Americans report having the most cash on hand; younger Americans the least.)

Digital transactions comprise the majority of transactions in terms of total dollars, because the largest expenses, such as mortgages and car payments, are paid online or with cards. Americans still use cash for most transactions — especially those under $10 — but they are increasingly using debit and credit cards for larger amounts.

Kristin Murphy, Deseret News
Sarah Smith consoles her daughter Delilah, who is afraid of a bug below her, outside of their home in Riverton, Utah, on Monday, April 8, 2019. The Smiths follow Dave Ramsey's cash-only envelope system.

And when asked what form of payment they prefer to use, most Americans said debit cards (42 percent), then credit cards (29 percent) and then cash (24 percent), according to the Federal Reserve.

And 2017 was the first year in which consumers were more likely to use debit cards than cash for transactions between $10 and $24.99, according to the Fed's annual Diary of Consumer Payment Choice.

For people like the Smiths, debit cards are OK, but cash is better. The couple subscribes to financial guru Dave Ramsey's philosophy that using physical cash is the best way to get one's financial house in order, in part because of the psychological effects of handling money.

Research has shown that people behave differently when using cash as opposed to other forms of payment. For example, consumers tend to spend less when buying groceries with cash, and they leave larger tips when paying for a restaurant meal with a credit card.

That's because we feel a sense of loss when parting with physical money, whereas when we pay with a card, we don't see the money disappear and we get the card back, said Avni Shah, an assistant professor of marketing at the University of Toronto who studies how different forms of payment affect consumer behavior.

This "pain of payment" has a payoff, however, she says. When paying for something with cash, we often appreciate and enjoy the product more. And we're more likely to make decisions that improve our financial security, both now and in the future.

"If I've got a hundred-dollar bill in my wallet, and that’s the only bill I have, and I’m deciding if I’m going to buy a $1.50 soda, more often than not, I will say I don’t want to break a hundred-dollar bill to buy a $1.50 soda. Is it a need or want?" John Smith said.

Effect on the poor

Despite the research that suggests that doing business with cash is better for our wallets, cash has its drawbacks. It can be lost or stolen, and it's often teeming with germs.

"Traces of the bacteria staphylococcus have been detected on 94 percent of all U.S. dollar bills," wrote David Wolman in his 2012 book "The End of Money."

Paper currency has also tested positive for cocaine residue, and one study in Switzerland found that the flu virus can survive on a banknote for more than two weeks.

Despite these negatives, cash is often the currency of the poor, who may have had bank accounts closed because of repeated accounting mistakes, or who may be paid in cash and not have easy access to banking services. It's estimated that 14 million American adults don't have bank accounts and debit cards.

Because of this, business owners who decide not to accept cash can be seen as discriminating against low-income people under the guise of being high-tech and trendy.

“There’s a slight barrier to entry, which you can’t ignore, and we really wrestled with that," Theo Friedman, co-founder of the shaved-ice company Bonsai Kakigori, told reporter Alexa Tsoulis-Reay on MSN.com. “You’re making a real socioeconomic statement when you say, ‘I only accept cards.'''

Kristin Murphy, Deseret News
Sarah Smith shows the categorized wallet she uses to follow Dave Ramsey's cash-only envelope system at home in Riverton, Utah, on Monday, April 8, 2019.

In addition, the poor, especially in developing nations, usually engage in small transactions that aren’t attractive to banks.

“The killer in finance (is) small amounts with high volume. Purchases of less than a dollar can cost more than a dollar to do the payment,” said Collins, at the University of Wisconsin, adding, “If you don’t have a very high balance, financial institutions don’t really want you as a customer.”

Payment systems such as M-Pesa, a phone-based processor of "micro" transactions, are attempting to solve this problem, and the Better Than Cash Alliance, a nonprofit affiliated with the United Nations, says its mission is to accelerate "the transition from cash to digital payments in order to reduce poverty and drive inclusive growth."

One report from the alliance, for example, concludes that when workers in Bangladesh were paid digitally, instead of with cash, companies improved efficiency and workers were better able to save their money. After electronic payment was implemented, there was a 69 percent decrease in the number of women workers who said they were unable to save money because a family member controlled their salary, the report said.

Additionally, when companies started issuing salaries electronically, more businesses in the area began accepting digital payments, the alliance said.

But the complete digitization of money doesn't just depend on the willingness of consumers and employers, as Collins points out. It also depends on technology that enables real-time transfer of money, which is not widely available in the U.S., he said.

“We have a pretty antiquated payment systems; we were the last to get away from paper checks, and our ability to do real-time payment transfers is pretty limited. We’ll be at the trailing edge of this trend, not the leading edge," he said.

Among the last of the technologically advanced nations to adopt chip-and-pin technology for credit cards, the U.S. has been slow to change because of ubiquitous "legacy" payment systems that are "complex and costly to change," as well as Americans' fears about payment security, according to a 2013 Federal Reserve report on how to improve payment systems.

"In the U.K. and some of the other countries that now have fast payment systems, the government required banks to make the upgrades," Kevin Wack reported for Marketplace.

The U.S. has not.

But in 2017, a consortium of U.S. banks that comprise The Clearing House launched a real-time payment platform that is now accessible to about half of American consumers with checking accounts. The Fed is considering starting its own real-time payment system, as well, Wack recently reported for American Banker.

Choice and privacy

Critics of complete digitization of currency include Professor Lawrence White, professor of economics at George Mason University in Fairfax, Virginia, who says that while cash has both advantages and disadvantages, he believes the nation is better served by choice.

“People should be free to choose which combination of benefits and costs works best for them,” White said.

White is not as disturbed by potential discrimination against the poor — “It seems to me there’s not a lot of overlap between people who don’t have any credit cards and people who would eat at an expensive restaurant” — but he sees the elimination of cash as the elimination of an option in a marketplace built on freedom of choice.

There’s also the loss of privacy that will occur when every transaction is potentially monitored by a third party — in some cases, a third party that’s getting a cut of the transaction, as credit card companies do.

" People should be free to choose which combination of benefits and costs works best for them. "
Lawrence White, professor of economics at George Mason University

Similar to security cameras reducing crime, the loss of privacy would likely reduce criminal activity, such as drug-related money laundering and tax evasion. Large amounts of cash — such as the $650 million in U.S. dollars found in Saddam Hussein's palace in Iraq — are so associated with crime that in some circles, the $500 Euro note (recently discontinued) was known as the "Bin Laden." Criminals deal in cash because it can't be traced, and large bills can be easily stored.

Thankfully, there is no criminal association with the nickname for the $100 bill in the U.S., the Benjamin, because as White notes, “Lots of innocent people use hundred-dollar bills, too.”

Those innocent people include the Smiths in Utah, who pay their children for chores with dollar bills so they can better understand what they're earning and spending, and Shah, the researcher in Toronto, who still carries cash although she believes “those days are numbered.”

Kristin Murphy, Deseret News
Eden Smith draws on the sidewalk outside of her home in Riverton, Utah, on Monday, April 8, 2019. The Smiths follow Dave Ramsey's cash-only envelope system.
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“We’re not going to go backwards. We’re not going to go back to people carrying around loads of cash,” she said.

Some problems of going cash-free are easily solved; for example, people who want to give money to the homeless could carry prepaid credit cards or gift cards to hand out.

In theory, the tooth fairy could do that, too. But in Sweden, where cash has largely been eliminated thanks to a mobile payment system called Swish, the tooth fairy is showing herself to be old school.

"She still leaves coins," said Florence Hugh, a resident of Lulea, Sweden, who recently visited the U.S.