A study by the British Retail Consortium (BRC) has some in the FinTech space a flutter due to a surprising find: Cash usage grew for the first time in a decade, rising to 19% of all transactions (from 15% in 2021).
Many people deduced, amid the shift to digital payments during the COVID-19 pandemic, that cash would be abolished or at the very least – die slowly. A few headlines from 2021 include: "Cash will soon be obsolete. Will America be ready?" And "These are the last days of cash. We might miss it when it’s gone."
And fair enough. During the pandemic, many Canadians avoided touching cash due to the fear of virus transmission, plus there is a general societal movement towards digital payments.
However, in Canada today, there’s been a small rebound back to using cash, in fact, according to Payments Canada, cash users are back at pre-pandemic levels.
Why do Canadians Prefer Cash?
According to the study, nearly one in three Canadians still use cash for day-to-day purchases, such as making a small purchase, paying expenses, or paying a friend or family member.
Nearly one in four are using cash for daily purchases, and emergencies. Meanwhile, over 30% of Canadians hold cash for emergencies only. And not surprisingly older Canadians are significantly more likely than other age groups to be using cash in this multi-purpose way.
Canadians who use cash like it because it’s fast, widely accepted and allows the user to access their own funds and not borrow. Canadians also feel more ‘spend guilt’ using cash.
Is Budgeting with Cash Easier?
The last two reasons (allows the user to access their own funds and not borrow and feeling more ‘spend guilt’ using cash) are budgeting factors.
Rich Widdifield, Senior Financial Planner, Assante Capital Management Ltd. says this makes sense. Cash is more tangible, and some people utilize it as a budgeting tool.
“It’s harder to pay a $150 bill with a few twenty-dollar notes versus using your card,” he says. “It adds awareness around spending money.”
Widdifield says that when budgeting the best tool is to track your spending. If you want to use cash that’s fine. But it’s just as simple with a credit card or debit card. Banks do a decent job of categorizing spending and credit cards provide a detailed statement every month.
“Even if you can track 80% of your spending it will help you budget and help your financial planner with your overall plan,” Widdifield says.
Concerns about Tough Times Driving Cash Demand
And why are we talking about budgeting? The economy of course. In times of high inflation rates and general economic unease people tend to turn to tried and true budgeting tactics, such as cash.
Therefore, it makes sense that cash is trending upwards as more Canadians are tightening their belts and trying to ride out high inflation. Canadian investors are awaiting the latest update with Wednesday's Bank of Canada announcement. In the U.S. the economy is predicted to see its rate of growth slow in 2024, but no recession is expected yet. The situation on the ground, however, is something to keep an eye on.
The Economy and Canadian Debt in 2024
In Canada, “I am definitely noticing that things are tighter for clients,” Widdifield says. People are trying to get ahead of higher interest rates and higher mortgage rates.
Mortgage rates are something that will likely stay in the spotlight this year. With 31% of all mortgages in Canada set to renew within the next 18 months – meaning that 3.4 million Canadians have a mortgage set to renew by March 2025.
“It could get ugly for many Canadians,” he says.
Widdifield’s clients are also encountering things like travel inflation where hotels in many cases seem like they are double the price.
It will likely be a bumpy year, but there is one silver lining for financial planners: While guiding clients through turmoil and trends it is an opportunity for advisors to show value.
Morningstar analysts believe it’s all about turning adversity into an advantage. Although, we don’t truly know if the cash rebound is here to stay, or what the budgeting outcomes for all Canadians will be – download the 2024 outlook for further insight.
