Cash is still king and people still use banks – here's where technology hasn't taken over

Russ Wiles
Smartphones, new investments and changes in the banking field have transformed the financial lives of millions of Americans but not for all of us.

Financial innovation has changed so much that we're all paying for our favorite new smartphone apps from the comfort of our homes at 2 a.m. and using bitcoins transferred from our mobile wallets. Right? 

Clearly, that's not the case for most Americans. The banking and investment landscape has undergone a tremendous transformation in recent decades, and the pace of change will likely intensify.

But that doesn't mean all these newfangled products and services will replace many popular, if somewhat antiquated standbys.

Here are some examples from banking, retirement and other areas.

Cash: It's still king

It's easy to assume paper currency soon will go the way of the dinosaurs. After all, credit and debit cards, cryptocurrencies such as bitcoin and electronic-payment systems such as Zelle could make physical cash as obsolete as eight-track cassette recorders.

But not anytime soon. Both the volume and value of U.S. currency in circulation have been on long-term upward trajectories, reaching record-high levels, according to the Federal Reserve, which oversees the stuff.

"Cash continues to be the most frequently used payment instrument, representing 30 percent of all transactions and 55 percent of transactions under $10," according to a Fed report in November. "While online shopping continues to grow, 77 percent of payments were made in-person."

The volume of cash, meaning the number of Federal Reserve notes, has risen for 17 consecutive years. The 41.6 billion bills in circulation at year-end 2017 were worth $1.6 trillion, also a record that has climbed as more paper money has gone into circulation this year.

Yet the mix of currency has shifted a bit. There are now more $100 notes out there than $1 bills – a recent development – with $20 bills next most common, followed in order by $5s, $10s, $50s and $2 bills. Savers around the globe seem to like $100 notes to store their wealth, while smaller denominations are used more for transactions.

At any rate, a cashless society hasn't yet arrived. Americans, and foreigners, like money they can easily recognize and quickly pull out of their wallets, without the need to remember passwords and usernames.

More: Millennials prefer cash to credit cards and are gun-shy to debt, new study indicates

More: More Americans are giving up on debit cards, new survey reports

More: Not all shoppers are sold as more retailers buy into cashless society

IRAs: Still on a roll

Individual retirement accounts should be falling out of favor by now, as few Americans regularly put money into them despite tax benefits. Only 9 percent of IRA-owning households contributed to their accounts in 2016, the most recent year studied by the Investment Company Institute – and people lacking IRAs obviously didn't contribute, either.

Yet IRAs are the largest type of retirement vehicle, ahead of workplace 401(k) accounts, pensions, annuities and everything else. How can this be if so few people are making new contributions? Because of rollovers.

Rollovers are movements of money from one type of tax-sheltered account into another, especially switches from 401(k)-style plans into traditional IRAs but also moves from one IRA to another. Rollovers are popular because they delay dealing with the tax man, at least (typically) until after an investor reaches 70½.

Rollovers are largely responsible for the growth of IRA assets, according to the Investment Company Institute. The mutual fund trade organization estimated Americans held $9.2 trillion in IRAs last year, representing 33 percent of all retirement assets, with the share growing.

Rollovers become important when people change jobs or retire – and a lot of baby boomers are retiring these days, while plenty of younger adults are switching jobs.

In such cases, it often makes sense to transfer money from a former employer's 401(k) plan into a rollover IRA. Accounts can be set up at hundreds of brokerages, mutual fund companies or other investment firms that serve as custodians.

Bank branches: Still at your service

Bank branches aren't a financial product or service but rather a channel that customers can use. And they, too, have been in the crosshairs for obsolescence. But while the number of branches has been in a decades-long retreat, they haven't disappeared and likely won't in our lifetimes.

Granted, most people don't conduct most of their banking at branches. In a September survey by the American Bankers Association, 72 percent of respondents said they mainly use online or mobile access.

Branches were preferred by only 18 percent of respondents, followed by ATMs, telephones and mail, though most consumers use multiple channels.

"Banking in person at branches has consistently maintained its appeal to a large number of people," said Nessa Feddis, a senior vice president at the American Bankers Association. 

Branches are becoming smaller, more tech-oriented with features such as video tellers, more inviting with couches and lounges, and sometimes are more specialized. A real estate-focused Chase office in Scottsdale, Arizona, has a virtual-reality area, allowing prospective homebuyers to tour properties without needing to visit them.

If you're like me, it has been at least a couple of months since you last set foot in a branch lobby. But you probably like knowing your bank or credit union has an office nearby.

You likely won't visit to make a deposit or check your balance, but you might go there to open an account, apply for a loan, get a document notarized or seek investment advice.

Social Security: Still paying benefits

I'm cheating a bit by mentioning Social Security, as the system's day of reckoning won't arrive in 2019 but sometime around 2034. That's the projected date when Social Security's financial buffer, known as the trust-fund surpluses, will run out of money.

But Social Security won't disappear even then. It will become a fully pay-as-you-go system, sending benefits to retirees based on whatever income it collects, primarily in the form of payroll taxes but also from recipients whose benefits are partly taxable.

The latest estimate, from Social Security's trustees, predicts the system will have enough revenue in 2034 to pay around 79 percent of its obligations. It's unclear what happens after that.

"One option would be to pay full benefits on a delayed schedule; another would be to make timely but reduced payments," a June report by the Congressional Research Service said. Other options might include reducing benefits for wealthier recipients or imposing new or higher taxes.

Even those dismal scenarios assume Congress does nothing to shore up the system over the next 15-plus years, but some type of bipartisan reform effort could materialize and probably will. As 2034 moves closer into focus, politicians won't have the luxury of kicking the can down the road forever.

In some form, Social Security survives for the long haul.

Reach Wiles at russ.wiles@arizonarepublic.com or 602-444-8616.

This article originally appeared on Arizona Republic: Cash is still king and people still use banks – here's where technology hasn't taken over