Why keeping access to cash is so important in today’s society

Yesterday saw the release of a major report looking at attitudes and access to cash in society, finding that some 17% of Britons believe having physical cash is an absolute necessity without which they would be extremely disadvantaged.

Though of course nobody can deny the movement away from cash, which has been led both by consumers and businesses using plastic and making more contactless payments for small transactions.

There is a particular concern here for us at Fair By Design about the impact cashlessness will have on the poverty premium.

The report released this week by the Independent Access to Cash Review was commissioned amid a growing concern by various groups that the slow descent into a cashless, or “less-cash”, society was going to have very serious unintended consequences:

· Consumer groups worried about bank branch closures

· Small business associations concerned about how increasingly expensive and risky it is to handle cash

· Rural communities worried about a society reliant on adequate broadband and mobile connectivity, and

· Commercial organisations questioning their business models built for a high cash economy.

The report also goes into some detail about particular impacts that the “unplanned rush to a cashless society” will have, looking at the:

“burden being placed on the poor through the ‘poverty premium’, where people end up paying more if they can’t shop around, buy online or buy in bulk. As cash reduces, this premium could increase as people lose access to the high street, and debt could increase as they lose cash as a mechanism for controlling their budgets.”

We are often asked at Fair By Design why keeping access to cash is an issue related to the poverty premium. The answer is very simple: using cash is both a method of retaining financial control and a money management tool in itself to avoid paying over the odds for essential goods and services.

I recall some interviews I carried out in a previous research study which demonstrated just how important keeping cash was in money management. One man I spoke to from the East End of London used to save money primarily by careful shopping, using cash and going to the market instead of supermarkets or convenience shops where he knew he could get some bargains:

“What we usually do once a month is go to Dalston to get our meat, and in the week we get what we need. We get the cleaning stuff we need, but we go to Dalston market and get the meat and put it in the freezer for the month […] basically if you shop around a bit you save money by finding a deal.”

My own local market in Lewisham sells fruit and veg in big bowls for £1. If I want a week’s worth of apples, bananas, all the trimmings for a big Sunday dinner and change from a five pound note that’s where I will go. And cash is the only way I’ll get that.

What some people on low incomes distrust about mainstream financial or utility services is the worry that an error or an unseen bill will completely trip them up. While it was once the case that prepayment meters were more expensive to use than having a direct debit, the reason many people paid that extra cost was to keep the control (though that didn’t make the extra cost fair). Other people on low incomes say that avoiding banks does the same, preferring not to risk going overdrawn by making payments solely in cash.

So while we want firms in financial and energy services to create new and innovative products that restores people’s own control, we also want to ramp up the pressure to keep cash in society for those whose financial needs require it right now.

Recent statistics back up the argument that cash is often used as a money management method:

— Half of the 2.7 million consumers who relied predominantly on cash during 2016 had household incomes of less than £15k per year and in 2015, 40% of consumers who rely on cash had a total household income of less than £10,000 (Positive Money)

— Over three fifths of cash payments were for a value of £5 or less in 2016, “reflecting the extensive use of cash for low value convenience-type purchases” (UK Finance)

Bristol University’s research on the poverty premium shows just why small transactions, most of which are made in cash, are a way of retaining that control:

“Reduced capacity to pay out large sums at a time also means that low-income households have much greater need and desire than other households to put in place mechanisms that help them stay on top of their spending. Indeed, people living in low-income households show comparatively high levels of controlled spending and organised money management”.

That is why keeping cash in society relates so closely to the poverty premium: cash gives many low income households the comfort they need to keep on top of their finances and avoid paying premiums where they might occur. Cash is also an antidote to the poverty premium, particularly in avoiding dipping into an overdraft or saving money down the local market. It’s a vital economic necessity for many people.

Carl Packman, Head of Corporate Engagement, Fair By Design