Inflation, high rates make cash cool again

Gen Z discovers use to better manage budget

Generation Z has rediscovered cash as a budgeting tool, embracing it more than all other generations amid two years of soaring inflation that has ravaged household finances, according to a recent survey.

Nearly 70% of Gen Zers use cash more than they did 12 months ago, according to a Credit Karma online survey of 2,118 adults, which included 331 Gen Z adults ages 18 to 26. That share was higher than any other group, including Gen X, which was 47%, and Boomers at 37%. Credit Karma classifies Gen X as born between 1965 and 1980 and Boomers between 1946 and 1964.

Budgeting is among the top reasons people, especially Gen Zers with limited incomes, turn to cash as they try to manage high inflation, stock market volatility and rising interest rates that make it more expensive to use credit cards.

“For folks having trouble keeping up ... they’re looking to reverse that trend by not accruing additional debt,” said Courtney Alev, Credit Karma’s consumer financial advocate. “That’s where budgeting tricks like ‘cash stuffing’ come in.”

What is cash stuffing?

Cash stuffing is when you set aside cash at the start of each month for different categories of expenses like groceries, clothing and entertainment. Whatever is allocated to each category is all you get to spend that month.

The strategy became popular, particularly among Gen Zers, after influencers on Tiktok talked about using it to keep spending in check. Seventytwo percent of Gen Z adults are familiar with cash stuffing and 30% use it to budget (47%) and save (55%), Credit Karma said.

Since starting, 89% of Gen Zers who use cash stuffing have been able to funnel more money into savings. Another 70% say they’ve been able to lower their monthly spending, the survey said.

Is cash stuffing new?

As much as young people like to think they’re cutting edge and poke fun at Boomers, they’re not.

“The reason I use cash is it is simpler to budget,” said Eric Mah, 61, president of Gim Electric Co. in Chicago. “I’m old school, using cash for most purchases. Cash allows me to feel in control of my daily expenses.”

“My family have also been victims of stolen credit cards, counterfeit checks and stolen identities, so we try to keep our digital footprint at a minimum,” said Mah, who does use Paypal for certain purchases. But he also adds: “I do not have a debit card and rarely use an ATM. I’m still not ready to embrace the technology of digital payment.”

Aren’t credit card balances rising too?

At the end of last year, credit card balances exploded to $986 billion, the highest level since the New York Federal Reserve started collecting this data in 1999. The debt soared as people tried to keep up with inflation and higher interest rates. Credit Karma’s Alev doesn’t see this as contradicting the increased cash usage.

As Americans, especially young ones, see their credit card debt balloon, they’re looking for ways to limit it. Using more cash is one way. Nearly 20% of Gen Zers say cash forces them to be more thoughtful about spending, the survey said. Of the Gen Zers who pay with greenbacks, 64% said they spent less – an indication that cash is a great budgeting tool “especially if you’re someone who tends to overspend when swiping using debit or credit,” Alev said.

But don’t cut your credit cards yet!

“Make sure you’re still doing the work to build your credit,” Alev said. “That can be as simple as setting up monthly subscriptions on one credit card and paying it off at the end of each month or using one card to pay for gas expenses,” she said. “It’s important to build credit so that you’re able to gain access to better priced financial products, like auto loans and mortgages, down the line.”