Poll: Pay with cash or card for $5 purchase?

Cash is still king, but crown slips; millennials love to pay by card


Poll: Cash or card for $5 purchase? Cash, but not for much longer
Poll: Cash or card for $5 purchase? Cash, but not for much longer

Whether it’s picking up a cup of coffee on the way to work or a magazine at the airport, more consumers are using their cards instead of cash to pay for small transactions, according to a new survey.

In fact, a national telephone survey of 616 adult U.S. credit card holders found that about 2 out of every 5 consumers will use either a credit card or a debit card for in-person purchases of less than $5. Here’s the breakdown: 11 percent prefer credit cards, 27 percent debit cards, 58 percent cash.  

Our findings boil down to this: Cash is still king, but its crown is slipping. Two years ago, when we conducted the same survey, cash was at 65 percent.

The anti-cash trend is particularly strong among the young. A majority of those ages 18-29 now prefer paying for small purchases with credit or debit, and only 36 percent will pay with cash.

“There will always be a place for cash, but I think the shift to cards in the past couple years has been tremendous as people feel more comfortable using plastic,” said Rachna Ahlawat, founder and vice president of Ondot Systems, a mobile payment software development company.

This poll also revealed differences in how consumers pay for small purchases:

  • Younger consumers prefer plastic, with 64 percent of millennials (18-29-year-olds) saying they use a debit or credit card when making small purchases. Just 19 percent of those 65 and older do so.
  • College graduates are more likely to use cards for small purchases. A combined 44 percent of those with college degrees prefer debit cards (28 percent) or credit cards (16 percent) over cash. Only 21 percent of those who have not attended college use debit cards for purchases of less than $5 and only 7 percent use credit cards.
  • Less affluent, unemployed rely on cash. Cash is preferred by 63 percent of those with incomes under $50,000. Those with incomes of $75,000 or greater use cash only 49 percent of the time. Unemployed consumers also favor cash: 69 percent of unemployed respondents said they use cash for purchases under $5 compared to 52 percent of employees.
  • Parents favor cards more than childless consumers. Nearly half (47 percent) of parents use credit or debit cards to pay for small transactions compared to 35 percent of nonparents.

Millennials comfortable with cards
Age is the biggest predictor in whether someone prefers cash or cards for small-dollar purchases. found young consumers are the least likely group to hand a cashier a $5 bill to pay for a cup of coffee. In fact, those 18-29 are the only age group in which a majority prefers cards to cash. They're particularly fond of debit cards, used by 46 percent.

That makes young adults nearly five times more likely to pay for a small item with a debit card than someone 65 or older.

“Debit cards can be obtained at a very young age,” explained Stephen Lesavich, lawyer and author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.” “For example, my 17-year-old son has a parent-supervised, high-school checking account at my bank and a debit card was issued for this high-school checking account, which he tied to a mobile pay system on his mobile phone.”

The same difference is present for credit cards, though not as dramatically. Those 18-29 are least likely to have a credit card, but those who have them, use them. They're twice as likely to pay for a small item with a credit card than those 65-plus -- 18 percent to 9 percent.

Overall, young adults prefer plastic for small transactions because they are just accustomed to swiping a card or paying online, not pulling out cash and coins. Ahlawat said her 19-year-old daughter only leaves her house with a phone and maybe one card, not a purse filled with cash.

“There is just no place to put cash anymore,” Ahlawat said. “Even if they are getting something out of a vending machine, they use a card. It’s just more convenient for them.”

We are finding that even 65- to 75-year-olds are comfortable using cards on a regular basis these days.

-- Rachna Ahlawat
Ondot Systems

Young adults have made digital, “swipe-and-go payments” for years. They just aren’t used to regularly handling cash, according to Lesavich.

“Everything at middle school, high school and college is paid for by an ID card, credit/debit card or electronic account,” he said. “Many have never even cashed a payroll check because of direct deposit.”

Older adults still love cash
The older the consumer, the more likely cash is used to pay for small-value transactions.

Middle-aged people -- 30- to 49-year-olds in this survey -- are almost evenly divided when it comes to how they pay for small purchases: 49 percent favor plastic and 43 percent favor cash. However, among consumers beyond 50 years, cash becomes the preferred payment method. The  preference for cash jumps to 72 percent for 50- to 64-year-olds and to 77 percent for those 65-plus.

“This is very much a generational thing where ‘cash is king’ and many retired folks are on limited budgets and know exactly to the penny how much money they can spend,” Lesavich said.

Much like how younger consumers are just used to paying digitally, some older consumers are accustomed to cash, like 50-year-old Mike Scanlin, CEO of Born to Sell. For him, it makes sense to pay for small, day-to-day purchases with bills instead of plastic.

small purchase breakdown

“I carry cash all the time,” he explained.  “The reasons are: No. 1, It's faster. I don't enter a PIN or have to sign. No. 2, I use Quicken to track finances and I don't want to have to enter every little $1 spent. I only have to enter, and later reconcile, expenses made with check or credit/debit cards, because I get statements on those. No. 3: Sometimes I don't want an electronic record of my purchase.”

While these are fine reasons for favoring cash in some situations, all consumers should try to use credit cards at least occasionally, especially baby boomers.

“Many older folks have their credit affected in a negative way by paying cash because such transactions are not reported to the credit bureaus,” Lesavich said.

Even though spending might decrease during retirement, that doesn’t mean credit doesn’t matter anymore. “You really you need keep strengthening and working on it,” explained Martin Lynch, director of education of the Cambridge Credit Counseling Corp. of Massachusetts.

There is evidence even older folks are loosening their grip on cash, though. In 2014, found 82 percent of consumers age 65 and older use cash for small-value transactions compared to 77 percent now.

“We are finding that even 65- to 75-year-olds are comfortable using cards on a regular basis these days,” Ahlawat said.

A migration away from cash
While most survey respondents said they’d use cash to pay for a purchase under $5, the portion of people favoring cash is decreasing.

The reasons behind card use becoming more ubiquitous are fairly simple:

  • Cards are convenient. For many, swiping or dipping a plastic card is just easier than paying with cash, especially for busy professionals and families who might not have time to stop by an ATM or fumble with change in the checkout lane.
  • Plastic is usually fee-free. Cash can be expensive. ATM fees are common and if consumers aren’t careful, a quick stop for cash could result in a few dollars in fees. While that may not break the bank every once in a while, regular ATM cash withdrawals can add up.
  • Cash isn’t protected. If money is stolen from a debit or credit account, there are protections in place to help consumers recover lost funds. Even for small purchases, using a credit card is a particularly safe way to secure money, thanks to the zero-liability fraud protections provided by the major card networks.
  • Rewards are an added bonus. Relying on cash for even the smallest of purchases often means forgoing the possibility to earn cash (or points or miles) that so many credit cards – and even some debit cards – offer today.

For these reasons, experts aren’t surprised consumers are favoring plastic over cash when it comes to paying for purchases of any kind, large or small, and expect the cashless trend to continue, according to Lynch.

When consumers use plastic, debit or credit, they aren’t as mindful about the amount they are spending.

-- Martin Lynch
Cambridge Credit Counseling Corp.

Even Ahlawat, who tries to use cash for small purchases, such as her afternoon coffee, said she doesn’t rely on cash nearly as much as she used to. “I actually only have $7 in my wallet right now,” she said.

Is it good to rely on ‘virtual’ money?
Relying solely on plastic to pay for purchases – large or small – does have a major downfall.

“When consumers use plastic, debit or credit, they aren’t as mindful about the amount they are spending,” Lynch said. “They are more likely to spend more than they can really afford.”

Lesavich found this out the hard way when he took a closer look at his credit card statement – and his frequent Starbucks buying habits. While he was only spending roughly $2 each day on a cup of coffee, those small card transactions were out of sight, out of mind on his card.

“My credit card bill had five or six pages of entries with an entry for Starbucks virtually every day of the month,” he explained. “After seeing that, I decided to pay cash for my coffee instead of charging it on the card so I could keep better track of what I was spending.”

Survey methodology
The survey was conducted by Princeton Survey Research Associates International for March 3-6, 2016. It contacted a representative sample of 1,000 adults, 616 of whom said they had a major credit card – American Express, Visa, MasterCard or Discover. The cardholders were asked, “When you pay for something in person that is less than $5, do you usually pay with cash, a credit card or a debit card?” The margin of sampling error for the cardholders is plus or minus 4.8 percentage points.

See related: Poll: Cash or card for $5 purchase?, Survey: 5 in 6 Americans admit to impulse buys, Paying by cash won't build credit score

Published: March 22, 2016

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Updated: 10-27-2016

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