Consumer Preferences and the Use of Cash: Evidence from the Diary of Consumer Payments Choice

Paper
Date Published: 
Jun 2014
Author: 
O’Brien, S.

Discussing the role of cash as a daily payment instrument

This paper provides new evidence on the determinants of cash usage for small value payments, and particularly how consumers’ stated payment instrument preference and the amount of the purchase affect their propensity to use cash. Participants who stated a cash preference have a predicted probability of a cash payment of 80% overall. However, if the amount of the transaction is less than USD 20, the probability increases to 91%. If the transaction is greater than USD 20, the probability decreases to 57%. Individuals who stated a payment card preference were estimated to have approximately a 30% probability of a cash transaction overall, but that probability increases to 49% when the transaction is less than USD 20 and drops to 8% when purchases are over USD 20. These estimates were conducted using the Federal Reserve October 2012 Diary of Consumer Payment Choice dataset, which includes all the recorded financial transactions of approximately 2,500 individuals who participated in the diary during their variously assigned three consecutive-day periods within the month of October 2012. In addition to recording all their financial transactions, they answered questions regarding payment instrument and cash handling preferences. These regressions suggest cash continues to play a large role as a payment instrument especially in lower value transactions for all demographic groups.

Type: 
Paper
Region: 
North America