Research Data Reports

U.S. Consumer Holdings and Use of $1 Bills

2015 • No. 15–1
By Scott Fulford, Claire Greene, and William Murdock III

Small denominations play a special role in a payments ecosystem because they facilitate exchange for small-value goods and services. This report examines the $1 bill holdings of adults in the United States using data from the Diary of Consumer Payments Choice (DCPC). Simply knowing the number of $1 bills in circulation is not useful for understanding consumers' actions, since many of these bills are held by merchants. The costs and benefits to the consumer of carrying $1 bills have been largely ignored in the policy discussion of the costs of switching from dollar notes to dollar coins. Knowing the facts about U.S. adult consumers' holdings of $1 bills represents a first step toward gaining an understanding of these costs and benefits to consumers.

RELATED LINKS ON OTHER SITES:
Consumer Payments Research Center (Boston Fed)

The adult U.S. consumer with median holdings carries two $1 bills, while the mean $1 bill holding is slightly below three. The data reveal wide variety in the number of $1 bills that U.S. consumers carry: some consumers hold large numbers of these bills; others hold none, even if they hold bills of other denominations.
On any given day, about 64 percent of U.S. adults 18 years of age and older start the day with at least one $1 bill in their pocket, purse, or wallet; around 50 percent of consumers make at least one transaction with cash on any given day.
There appears to be some active management of $1 bill holdings: consumers with few or no $1 bills at the beginning of the day tend to acquire some, while consumers with many tend to have fewer at the end of the day.
For consumers who made a cash purchase but started with no $1 bills, 40 percent still had zero at the end of the day. One explanation may be that some people were using coins, which the DCPC does not track.
The relationship between $1 bills carried and the change in $1 bills carried by a consumer appears to be independent of the total amount of cash carried.
For adults, the average divide between increasing the number of $1 bills they hold and decreasing these holdings is 2.25.

The target number of $1 bills helps us to understand the competing risks and preferences for holding such bills. A relatively low number suggests that while people do want $1 bills and find them useful, their desired holdings are not particularly large. For many people, the desired holdings may even be zero. The fact that many consumers are willing to hold zero $1 bills suggests that the expected marginal cost of not having any is typically fairly small.

The DCPC enables us to answer the simple question of how many $1 bills the average American adult carries. This is a first step toward understanding the costs of switching to dollar coins from the consumer perspective. Because the DCPC does not track coins, it does not enable one to directly track whether consumers are substituting dollar coins or other coins for bills.

We use new data from the 2012 Diary of Consumer Payment Choice (DCPC) to examine U.S. consumers' on-person holdings of the one-dollar ($1) bill. The adult U.S. consumer with median holdings carries two $1 bills, while the mean $1 bill holding is slightly below three. The data reveal wide variety in the number of $1 bills that U.S. consumers carry: some consumers hold large numbers of these bills; others hold none, even if they hold bills of other denominations. There appears to be some active management of $1 bill holdings: consumers with few or no $1 bills at the beginning of the day tend to acquire some, while consumers with many tend to have fewer at the end of the day. The costs and benefits to the consumer of carrying $1 bills have been largely ignored in the policy discussion of the costs of switching from dollar notes to dollar coins. As a first step toward understanding costs and benefits to consumers, we examine consumers' dollar bill holdings and use.