This Trick Is Helping Young People Get Their Finances in Order

https://www.nytimes.com/2022/11/09/opinion/cash-stuffing-personal-finance.html

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When Jasmine Taylor turned 30 a year and a half ago, her personal finances were a mess. “I told myself, this is my last year of living like this,” she said to me. She hunted for a system that would help her discipline her spending and came upon a budgeting strategy called cash-stuffing that she’s been using ever since.

She takes her weekly income in cash and stuffs it into clear plastic envelopes in a colorful binder, one envelope for each category of spending. If her envelope for groceries is empty before the month is over, she’ll make do with the food she has at home. On the first of each month she deposits cash in the bank to cover that month’s recurring bills. She uses credit cards for online spending but pays them off in full with the cash from her binders.

Cash-stuffing hasn’t just disciplined her spending; it has also given her a new career as a social media influencer. She has more than 600,000 followers on TikTok, more than 160,000 on Facebook, 118,000 on Instagram and more than 90,000 on YouTube. She regularly posts videos of her hands counting and distributing currency while tallying everything up on paper in one of her notebooks. Thanks to cash-stuffing, she said, “I’m making a very good living.”

I confess that I knew nothing about cash-stuffing until a few weeks ago, when I got an email pitch about it from a personal finance company. When I write about personal finance it’s usually to share the ideas of academic economists who specialize in lofty concepts such as lifecycle consumption smoothing. When I write about cash it’s usually to muse on its gradual disappearance. Last year cash was used for just 20 percent of all payments, down from 31 percent in 2017, according to an annual survey by the Federal Reserve. I always thought, Why use cash when credit cards, debit cards and A.C.H. payments are faster and easier?

Clearly I was missing something big. Credello, the company that pitched me on cash-stuffing, conducted an online survey with 600 American adults aged 18 to 41 and found that 61 percent said they use some form of cash-stuffing at least some of the time. (True, 55 percent of those said they regularly use credit cards, which some cash-stuffing purists don’t like.)

Whatever happened to the proposition that cash is dead? Why has this dirty, inconvenient, stealable, strictly analog technology found new life among young people, the digital natives who spend big portions of their lives online?

I asked several people, starting with Taylor, who lives in Texas and runs a website called Baddies and Budgets. It’s all about the tangibility of cash, she said: “When you use cash, you realize how much stuff has gone up. Having to physically hand somebody $20 or $100, it feels different. You almost have a physical attachment to your money.”

Rachel Cruze, who hosts a radio show specializing in personal finance (and whose father is the personal finance guru Dave Ramsey), agrees. “When it comes to personal finance, it’s really 80 percent behavior,” she told me. “They’ve done M.R.I.s on the brain, and your brain registers pain when you pay with cash. When you use a card it feels like you’re using someone else’s money, so you spend 12 to 18 percent more.”

I also spoke with Teresa Ghilarducci, an economist at the New School in New York, who parts ways with many of her fellow economists on retirement savings recommendations. In an email, she wrote that standard economists’ advice doesn’t account for people’s emotions and weaknesses.

“People are prone to regret and they know it,” she wrote. “They need self-binding institutions to motivate them to defer consumption — the retirement envelope is one of those self-binding institutions; so is the jam jar where you put the rent money.”

The jam jar that Ghilarducci mentioned was the predecessor of cash-stuffing — a similar savings method that the grandparents and great-grandparents of today’s millennials used. Cash, of course, was a far more common means of payment in the past. Even last year, the Fed study found, people over 65 were about a third more likely to use cash than 18- to 24-year-olds.

Anecdotally, though, cash-stuffing is far more popular among young people. Why? I can think of two explanations. One is that it’s popular on TikTok and other platforms that are frequented by young people. The other is that young people on average have lower incomes. People with incomes under $50,000 a year are two to three times as likely to use cash as people with incomes over $150,000, according to the Fed study. It’s probably not 20-somethings with high-paying jobs on Wall Street who are fueling the cash-stuffing craze.

It’s also probably not young economists who are counting out bills and stuffing them into envelopes. In standard economic theory, it makes sense to borrow a lot when you’re young and poor, as lifecycle consumption smoothing recommends, then pay it back when your income is higher. But Ghilarducci said you can’t be sure that your earnings will rise enough, or that you will be disciplined enough, for that strategy to make sense, so saving while young is prudent. The risk that someone will underspend while young and not enjoy life enough is “a lot less serious than not saving enough for old age,” she wrote.

As an aside, Ghilarducci said she’s providing members of Congress with information for legislation that would create mandatory retirement savings accounts, partly funded by the federal government, along the lines of the Thrift Savings Plan used by Congress itself.

Cash-stuffing isn’t for everybody, of course. If you’re doing fine without it, there’s no reason to bother. Also, personal finance websites such as Mint and You Need a Budget offer a virtual version of cash-stuffing, where people distribute their paychecks into various buckets and then spend out of those buckets.

For many people, though, especially those who are just beginning to wrest control of their finances, the virtual version of cash-stuffing isn’t powerful enough, Taylor told me. To get motivated, they need to see and feel the long green.

If the United States ever switches to a four-day workweek in a big way, as some companies have already done, what day should disappear? You could argue for Monday to give people more time to recover from rough weekends, or Wednesday because it would split each workweek into two manageable two-day work periods. But according to data from the American Time Use Survey that I recently analyzed, Friday seems to be the most natural choice by a small margin.

The chart shows the average number of hours worked by people who are working on each of those days. (The average number of working hours for all Americans is obviously much lower.) Notice that the day workers put in the most hours is Thursday, maybe to clear the decks for an easy Friday.

“My parents have lost at least 100 cattle due to drought, and right now they don’t have enough money to pay school fees for my younger siblings. I am here to make my voice heard. I am here to let everyone know it’s about time that countries meet their climate commitments. For example, the $100 billion promised by wealthy nations more than a decade ago to help poor countries in adaptation and mitigation has still not been delivered. We are in 2022. Why?”

— Sharon Gakii, a 24-year-old climate activist from Kenya, quoted in Africa Renewal, a United Nations publication, Nov. 7

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