Federal Reserve Study Highlights Cash Payment Challenges for Ohioans

As pennies vanish from circulation, Ohio's cash buyers may end up paying the price. According to the Ohio Restaurant & Hospitality Alliance President John Barker, with no federal or state rules for rounding totals to the nearest nickel, businesses face uncertainty in how to handle cash transactions.

Barker stated, 'It's a mess right now.' The U.S. Treasury estimates there are still 114 billion pennies in circulation, although many are unused. Since the U.S. Mint stopped producing new pennies on November 12, 2022, retailers have begun rounding cash totals.

The Federal Reserve Bank of Richmond suggested a common rounding rule, which would round totals ending in 3, 4, 8, or 9 cents up, while totals ending in 1, 2, 6, or 7 cents would be rounded down, and totals ending in 0 or 5 would remain the same.

However, a study by the Federal Reserve found that this rounding often does not favor consumers, estimating that nickel rounding could cost Ohio consumers about $6 million annually. The report highlighted that cash made up only 14% of all payments in 2023, but that figure varies significantly among different age and income brackets.

For instance, individuals aged 55 or older used cash for 19% of their purchases, while only 10% of those aged 18 to 24 did the same. Households earning $25,000 or less used cash 24% of the time, compared to 9% for those earning over $150,000, making even small rounding differences significant for low-income Ohioans.

Barker noted the impact on those on fixed incomes as being particularly pronounced. Many retailers, including Kroger, are warning customers to use exact change at self-checkout stations. A survey by the Retail Industry Leaders Association found that two-thirds of surveyed companies are rounding down, which may benefit shoppers but cost businesses millions.

The Ohio Chamber of Commerce President Steve Stivers emphasized the need for clear federal guidance on rounding practices, voicing concerns over potential legal risks for businesses. With many stores uncertain, some retailers express a desire to follow rounding rules similar to those in Canada, which eliminated the penny in 2012.

Looking ahead, the question arises whether the nickel will be next, especially as it costs nearly 14 cents to mint one, leading to an estimated $55.6 million annual increase in prices if eliminated. Stivers believes that the trend towards rounding will push consumers towards electronic payment methods, reflecting a broader shift in payment preferences since cash transactions comprised nearly one-third of purchases in 2016 but have now dropped to 14%.

The future of cash payments and the fate of the nickel remain uncertain as discussions about their viability continue.