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6 May 2022

More people could turn to cash to help budget as cost of living rises

Cash helps millions of people to keep track of their spending, but it's becoming harder to access

Households are using cash to keep track of their spending during the cost of living crisis, Which? research has found. 

Our survey also found many people who don’t regularly use notes and coins could turn to cash in the coming months to help manage finances as budgets are squeezed. 

With inflation at a 30-year high of 7%, households are being hit by soaring bills

Here, we explain how cash is being used to budget and why legislation is needed to protect its future.

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Households turn to cash to manage squeezed finances

In our survey of 4,000 people, more than half (54%) said they regularly use cash alongside other payment methods such as debit and credit cards.

Of those, half (52%) said that cash helps them keep track of their spending - equivalent to 15 million people. 

Meanwhile one in five (20%) people who don't regularly use cash said they would start using it if the cost of living crisis gets worse.  

Those most likely to use cash were people in the lowest income households.

A third (34%) of respondents whose annual income was lower than £20,000 found cash, on its own or alongside other payment methods, easiest to budget with, compared to a quarter (24%) of people earning between £40,001 and £60,000.

How people are using cash to budget

'Cash stuffing' is a budgeting method that has been taking social media platform TikTok by storm. 

Each month you withdraw cash, stuff it into envelopes labelled with different categories such as food shopping, nights out, savings and bills. 

The theory is that handling cash makes you more aware of what you're spending and as you've allocated set amounts for each category, you're unlikely to go over. 

The trouble is, leaving large amounts of cash at home comes with the risk it'll be lost or stolen - and it won't be earning any interest. Instead, you could withdraw the amounts you need each week, rather than each month. 

Alternatively, the '1p-a-day challenge' sees you save 1p on 1 January, 2p on 2 January, and so on. By 31 December, you’ll have £668. You could also try saving £1 a day to get £365; saving £1 on Mondays and increasing to £7 on Sundays to give £1,456.

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The impact of bank branch and ATM closures

Just as cash is becoming an increasingly important tool for people to manage their tight budgets, communities are seeing their access dwindle. 

Almost half of the UK's bank branches have closed since 2015, Which? analysis shows. 

During this period, 4,685 bank branches have shut their doors, with a further 226 already scheduled to close by the end of the year.

A total of 12,178 free-to-use ATMs have vanished since 2018.

What's being done to protect cash?

In December, the Cash Action Group (CAG) which is made up of eight major banks, as well as groups such as Age UK and the Post Office announced a raft of measures to maintain access to cash.

Any community facing the closure of a core cash service, such as a bank branch or ATM, will trigger an independent review by Link - the UK's main ATM operator. 

Link will determine whether a new solution should be provided and will have the power to commission services such as a shared banking hub or better Post Office services to meet the cash needs of the community as a whole - not just the customers of one bank or building society.

It's also now possible to get cashback without purchase at 2,000 shops across the UK.

Which? calls for legislation in the Queen's Speech

While the banking industry's initatives to protect cash are to be welcomed, they are voluntary and so there's nothing to prevent them being withdrawn at any point. We believe only legislation from the government can protect the future of cash. 

With less than a week to go until the Queen’s Speech, Which? is calling on the government to finally make good on its 2020 promise to legislate to protect cash for as long as it needed. 

Jenny Ross, Which? Money Editor, said: ‘Our research shows that cash remains vital for many on a tight budget, and many more people could well turn to it to manage their finances as the cost of living crisis continues. 

‘However, the UK’s cash system has taken a battering as thousands of bank branches and ATMs have closed in recent years, leaving those who rely on cash and face-to-face banking services at risk of being cut adrift. 

‘That’s why it is crucial that the government finally makes good on its promise to legislate to protect cash in next week’s Queen’s Speech.’