Cash vs Credit, How We Shop Continues to Evolve
The U.S. dollar is the world’s de facto currency. It is the most liquid and widely used currency in global trade, finance and investment. 90% of all foreign currency transactions involve the U.S. dollar. 50% of all the U.S. currency printed – including 80% of all $100 bills – are located outside the country. 58% of all known foreign central bank cash reserves are held in the American greenback. In short, the U.S. dollar reigns supreme.
But for American consumers, the platform in how we spend our dollars has been rapidly changing. In an ever-increasing world of technology, consumers continue to move away from physical cash and prove that credit cards are the true king of American commerce.
According to the U.S. Federal Reserve, in 2024, consumers averaged 48 payments per month. 35% of those payments were made with a credit card, followed by debit cards (30%) and cash (14%). Combined, credit and debit cards accounted for two-thirds of all consumer transactions. Now, compare that to 2012 when cash was the clear No. 1 method of payment (40%) while debit cards (24%) and credit cards (7%) were a distant No. 2 and No. 3, respectively. It wasn’t until 2018 when cash lost its crown as the preferred method of payment.
Despite the proliferation of credit and debit cards, it is unlikely the use of physical cash will completely disappear. Cash is still most likely to be used for payments of less than $25. In fact, 70% of all cash payments made last year were for under $25.
Low-income households are also much more likely to use cash than any other income demographic. For households earning less than $25,000, 24% of all payments last year were made using cash. Conversely, for households with incomes above $150,000, just 9% of transactions were made in cash while 51% were made using credit cards.
To say the use of credit cards has exploded over the past decade is a bit of an understatement. According to Trading Economics, as of June, there were 630 million credit card accounts in the U.S. That’s up 48% from 10 years ago. The Federal Reserve notes that 82% of all U.S. adults own at least one credit card. On average, American consumers make 17 credit card transactions each month. Over the past 10 years, total household credit card debt has soared 73% to a current record of $1.21 trillion. On average, each American credit card holder carries $6,473 in credit card debt.
According to CapitalOne Shopping Research, in 2024, American consumers used their credit cards in 56.2 billion individual transactions. That equates to 106,878 credit card transactions per minute or 1,781 transactions per second. The dollar-value of those 56.2 billion transactions last year totaled $5.51 trillion in purchases. The average credit card transaction was $98.31.
It’s easy to understand the surge in the use of credit cards over the past decade. Credit cards are symbolic of the technological advancements within our economy. As a matter of convenience, we can complete our purchases with the single swipe of a card. Both credit and debit cards are also essential for online shopping, which continues to take a bigger slice of sales within the retail industry. Budget-conscious Americans also use credit cards to receive benefits tied to airlines or hotels or to receive cash back on their purchases.
But credit cards do come with risk. According to LendingTree, the average interest rate on credit cards is 24.36%. That’s a lot of interest to be paid on those outstanding balances. Despite the risks, the use of credit cards within our economy doesn’t show any signs of slowing. In fact, the data shows just the opposite.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.