Paying Cash — No Problem?
Rosemary K. Heins, Extension Educator — Family Resource Management
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Paying with cash is common among those who do not have a bank or credit union checking account. People who do not have financial accounts are part of a group labeled the "unbanked." Upwards of 22 million American families are estimated to fi t this category plus there are millions more who may be "underbanked," meaning they have accounts but they use alternative financial service providers such as a check cashing outlet. African Americans are over four times more likely to be unbanked than whites. One-third of all Latin-American immigrants were unbanked in 2000 (Stuhldreher & Tescher, February 2005).
Why do people pay with cash rather than through a bank service?
There are several reasons people do not have a banking relationship.
- Bank minimum deposits and/or banking fees, particularly those for 'bounced' checks, are too costly for those with low income.
- Almost half of the 'unbanked' have had accounts in the past. Poor account management and/or credit history may prevent them from opening new accounts. Others may be tired of banks changing owners and names which may impact the cost of services.
- People who do not live in a stable housing situation and migrant workers may find it easier to utilize alternative financial services rather than a bank or credit union. Many low-income urban and rural areas as well as American Indian reservations may not have a bank or credit union located in their community.
- Alternative financial outlets may be more conveniently located, open during convenient times, and may offer other needed services (money orders, remittance options, etc.) in one community location.
- Low-wage workers living from paycheck to paycheck may not feel a need for money storage which a bank account provides.
- Immigrant, refugee, or other foreign-born Americans may mistrust banks due to negative banking experiences in their former homeland. U.S. banks may not have bilingual staff and/or financial terminology may not exist in the immigrant's native language.
- A banking practice such as paying or earning interest may conflict with religious belief
- Immigrants often lack necessary identification required to open a bank account.
How can people protect themselves when paying with cash?
When people pay bills or purchase products with cash it is important to obtain proof of payment. For most purchases, a sales receipt serves as proof of payment and a record of the service or product cost. People should keep their sales receipts and use them for documentation should the product need to be returned.