1st January 2025 marked the 20-year anniversary of the introduction of chip and pin in the UK. The payment system is second nature to most of us now and you likely use it for a lot of the transactions you make daily.
However, the technology was revolutionary at the time and created a lasting change in our spending behaviours.
Only 12% of all payments in the UK in 2023 were made using cash
After the introduction of chip and pin, UK consumers increasingly made payments using debit and credit cards rather than cash. More recently, the global pandemic and new technology such as contactless payments on cards, phones and smartwatches have accelerated the decline in cash payments.
As a result, the Payment Systems Regulator reports that in 2009, more than 1 in 2 transactions were made with cash. A decade later, this figure had fallen to 1 in 4.
Additionally, data from UK Finance shows that only 12% of payments were made using cash in 2023 – a fall of 7% from the previous year.
This could be partly because many businesses switched to digital payments only during the Covid-19 pandemic, and many haven’t changed back since. Access to cash is also declining as Cash Matters reports the number of ATMs in the UK fell by 10% between 2020 and 2022.
All this means that, in the future, the decline of cash could be likely to continue and we may eventually live in a completely cashless society.
You may want to consider how this affects your wealth mindset and spending habits.
The younger generation are more likely to embrace digital payments but still see the value in cash
As is often the case with new technology, younger generations who have grown up using digital payments are more likely to embrace them.
For example, a Kantar poll found that 54% of Gen Z and 53% of millennials have used Apple Pay and Google Wallet – digital payment wallets that can be used on a phone or smartwatch. In comparison, only 35% of Gen X and 18% of baby boomers used these payment methods.
That said, younger people still see the value in cash, and there has been a shift back towards physical payments. As a result, YouGov reports that 61% of Gen Z like using cash, compared with 56% of millennials.
This may be because cash feels more tangible and research shows that digital payments can encourage frivolous spending.
Studies show that we have a stronger emotional response when we pay with cash
Studies show that it might be harder to manage your spending if you’re primarily using digital payments.
Research from the University of Surrey monitored attitudes towards payment methods in New Zealand in 2013 and China in 2023. The results demonstrated that cash heightened participants’ awareness of their spending, while digital currency had the opposite effect.
One respondent said: “Digital money doesn’t feel like spending your own money… but cash is different, it always feels like your money is decreasing when you use it.”
The study also found that some participants experienced stronger feelings of guilt, sadness, or loss when spending cash than they did with digital payments. This suggests we have a stronger emotional connection with cash as it feels more “real”.
This could be one reason why younger generations are increasingly relying on cash to help them manage their budget. For example, concepts like “cash stuffing” – dividing cash into various envelopes for different spending categories – are very popular on social media.
While this approach might not be practical for you, it’s important to consider how you will maintain control of your spending in an increasingly cashless world. This will help you prevent overspending and could make it easier to work towards your financial goals.
3 tips to control your spending in an increasingly cashless world
1. Focus on your financial goals
Having clear financial goals is one of the most effective ways to reduce overspending. This is because your long-term aims might be more valuable to you than any gratification you get from a short-term purchase.
By focusing on your dreams for retirement or the memories you’ll make on a family holiday, you might find it easier to resist the temptation to make impulse purchases now. That’s why you may want to regularly review your financial goals and track your progress towards them, so you can stay motivated.
2. Consider using virtual “cash envelopes” on budgeting apps
Cash stuffing might not be practical, especially as many businesses no longer accept cash payments. However, budgeting apps often have virtual “cash envelope” features, allowing you to set spending limits on different categories.
This encourages you to be mindful about exactly how you’re spending your income each month. You’ll see if you’re regularly going over budget in certain areas, and having the limit in place discourages excessive spending.
Creating envelopes for specific financial aims could also be an excellent way to track your progress towards different goals.
3. Enable notifications from banking apps
The intangible nature of digital payments may make it feel as if you’re not really spending money, especially if you’re not aware of your exact bank balance. Enabling notifications on your banking apps is a simple way to rectify this problem.
Each time you make a purchase, you’ll get a small notification on your phone, detailing how much you’ve spent. This reminder could make spending feel more “real” and help you change your mentality.
It’s also a useful way to protect yourself against fraud as you will get a notification every time a transaction is made from your account. This allows you to identify suspicious activity and block your card immediately.
By making these simple changes, and continuing to use cash where possible, you might be able to retain more control over your spending.
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Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.