Despite provocative claims to the contrary, paper money is awesome, right? It’s crisp, fast, and anonymous. It’s saturated with patriotic hurrah and practically essential for making music videos, shopping on Canal Street, or folding origami.

It ain’t cheap, though. Especially if you’re poor. A study just published by the Institute for Business in the Global Context at Tufts University takes a closer looks at the costs of cash in the United States. I posted a short piece over at summarizing a few major findings, but this tweet from a reader makes clear that some elaboration is warranted.

"So 56 cents + 9 minutes per month? Not a great example of crushing oppression."

Let’s be clear: My post wasn’t framed as an example of crushing oppression. Another stealth tax incurred by the poor? Yeah, something like that. But let's step back a moment and spell things out a little. The Tufts group estimates that cash’s price tag is about $200 billion a year. That’s $1,739 per household, or 240 hours of work at the federal minimum wage of $7.25. More than $156 billion of that is cost to government, mainly due to tax evasion, and to businesses, mainly due to cash management. (Here’s a great post, by the way, on why Starbucks should ditch cash.)

The remaining $43 billion is on us consumers, but that cost is unevenly distributed. In fees alone, someone who doesn't have basic financial services—shorthand for not having a bank account—is more than four times as likely to pay fees every month to convert paychecks into cash, compared with a neighbor who has a bank account. As if that wasn't galling enough, African Americans are more than twice as likely as white Americans to pay the same fees.

Drilling down a bit, the study looks at consumers’ cash costs in four broad categories: ATM and check-cashing fees, time, cash theft, and theft risk mitigation. The latter two are less revelatory, in part because the risk of losing cash due to theft is actually quite low—6 crimes per 10,000 people, according to the Bureau of Justice Statistics. On the risk mitigation front, Americans who have the option of securing funds somewhere other than under a mattress will, not surprisingly, do so.

They are people with bank accounts. You, me, and about two-thirds of US households. Yet roughly 40 million Americans don’t have checking or savings accounts, and nearly 20 million Americans have no access to formal financial services whatsoever. For these individuals and families, the costs of cash are most punitive, especially when it comes to time and fees.

The average amount of time spent per month traveling somewhere to get cash is 28 minutes. (This excludes waiting in line.) For people who are “unbanked,” unemployed, or receive their pay for work in cash, that time spent jumps by 5, 9, and 12 minutes respectively. The Tufts team points out that it would be incorrect to assume time spent accessing cash is necessarily time spent away from earning money. Still, it’s worth noting that based on that average of 28 minutes, working Americans spend 5.6 hours per year “fetching cash,” which is equivalent to $31 billion in mean wage earnings.

Then come the fees. Interestingly, the study found that wealthy Americans don’t automatically eschew cash in favor of perks-suffused credit cards or slick new cellphone-based payment apps. People in the highest income bracket (over $100,000) reported the highest number of instances per month when they access cash: usually two or more times, and many respondents said they get cash more than 5 times in a month. (Life is passing you by, people!)

But these frequent cash-getters don’t have to pay much in the way of fees. Although 80 percent of A.T.M pit stops in the US are to get cash, the lion’s share of those visits are to machines connected to the consumer’s “home” bank, which means no charge. The same goes for cashing checks.

Still, cash access fees nationwide stack up to $8 billion annually, and this is where the poor really eat it. Americans who don’t have a bank account pay on average about $3.66 per month more for such fees than people who have bank accounts. Then they head over to the supermarket, where they get nailed again. Because credit card companies charge merchants hefty fees to process transactions, merchants bump up their prices. Card users get rewards to help offset this invisible surcharge. Cash users, in contrast, subsidize the rewards of card users. A 2010 study from the Federal Reserve Bank of Boston estimated that while the average cardholder enrolled in a perks program receives about $750 worth of rewards every year, the average cash user pays about $20 a year so that someone he or she doesn’t know can inch a little closer to a free airline ticket.

It would be a mistake to dismiss these findings merely as unfortunate but inevitable ways that the poor get nickeled and dimed. A few extra dollars here and there, a few extra minutes now and then—not exactly crushing. The reality is that the added costs of dealing with cash have the perverse effect of keeping people trapped using only cash. That makes it harder to climb the economic ladder. Without access to money in electronic form, it’s difficult to connect with the formal economy. In a word: saving. In a few more words: saving is key for building financial stability, getting a loan, opening a business, and more.

The uneven costs of cash make a bad situation worse. Poor people do not need paper money. They need liquid assets in a bank account.

AuthorDavid Wolman