How Cash Can Be Dangerous For Your Finances

There are many benefits to keeping cash; it is safe from hackers, exempt from credit and debit fees, and does not require any hardware or software to use. Most importantly, nothing feels better than having a wallet full of twenties. What most people do not realize is that cash has some serious downsides. Believe it or not, a study from Fletcher School at Tufts University found that paper currency can be costly for households, businesses, and governments alike. Here are 3 examples of how cash can be dangerous for your finances.

Cash Access in Unbanked and Underbanked Households

Unbanked and underbanked households are quite often negatively affected simply by the trouble of accessing cash. Unbanked people pay four times more in fees to access their money when compared to those with bank accounts. They are also five times more likely to pay cash access fees on payroll and EBT cards. Unbanked people also spend about five minutes longer getting access to their cash when compared to people with bank accounts. The study estimates that households spend about $31 billion in time accessing cash each year.

What Does It Mean To Be Unbanked?

The term “unbanked” describes households without a checking or savings account. The Consumer Financial Protection Bureau (CFPB) only considers Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insured accounts when evaluating banked status. This means peer-to-peer payment apps like PayPal and Venmo are not included.

What Does It Mean To Be Underbanked?

An underbanked household is one that has a bank account but lacks adequate access to other traditional financial services, such as credit and loans. Underbanked individuals may seek risky alternative financing services outside of their bank due to convenience or fear they may not be approved. Education is a key factor in underbanked households. People with high school diplomas or college experience are more likely to utilize alternative financial services.

Heads of underbanked households tend to access their accounts through a mobile app, and most pay their bills and receive direct deposits through their bank account. These households are less likely to have a credit card and more likely to have both bank and non-bank personal loans. Underbanked households may also use expensive and risky credit products like rent-to-own, payday and auto title loans.

https://www.forbes.com/advisor/banking/costs-of-being-unbanked-or-underbanked/

Business Troubles Managing Cash

For companies, the biggest trouble comes from managing cash. It must be stored in a safe place, guarded properly, and counted to make sure that nothing is missing. The biggest threat is theft – businesses lose about $40 billion each year due to thieves. Small companies and mom-and-pop stores are at the greatest risk for theft because they cannot afford high-tech security services and often operate in poor and crime-ridden areas.

Government Losing with Cash

Governments lose at least $100 billion each year due to under-reported taxes most caused by self-employed taxpayers. This, in turn, causes the government to cut back funding on programs made that help out the poor.

While cash might feel easy to manage, it is important for everyone to know the pitfalls and downsides of dealing with cash. There are, of course, also risks to managing digital money — namely hackers and scammers. Each person should assess the risks and benefits of their preferred style of money management to make an informed decision on how best to handle their finances.