‘Cash stuffing’: is cash making a comeback?

This is an audio transcript of the Money Clinic podcast episode: ‘“Cash stuffing”: is cash making a comeback?’

[MUSIC PLAYING]

Claer Barrett
Wow. It’s just so impressive, that marble carved lion heads.

This episode of Money Clinic comes to you from inside the Bank of England.

Let’s see if we get through security . . . Hello . . . I’m with the Financial Times . . . We’re here to meet up with . . . 

We were behind the scenes in the building that is essentially the mothership of money in the UK, both in terms of hard cash and setting financial policy. (Footsteps and inaudible speech)

From the outside, the building is impressive. A neoclassical fortress which occupies an entire block within the city of London. And on the inside, it doesn’t get any less impressive.

The ceilings, as you can probably tell from the echo, are incredibly high. The floors are incredibly ornate. They’ve got these kind of mock Roman mosaics, heavily polished and shiny. And then these huge lamps hanging from the arched ceilings lighting our way as we move through the bank’s corridors of power . . . 

As you can tell by its appearance, the Bank of England is a pretty important place. It’s essential to society in the UK. First of all, it’s our central bank, a bit like the Fed in the US. So it’s in charge of the country’s monetary policy. It also sets interest rates and tries to control inflation, something we’ve been hearing a lot about recently. And also on the more glitzy side of things underneath the Bank of England is a massive store of gold, actual gold bars. In fact, it’s the second largest keeper of gold in the whole world. I am standing at the most popular exhibit within the Bank of England Museum, which is a Perspex highly secured cage containing . . . as I try and lift it up . . . oh, the most enormous solid gold bar. Holding on to something that’s worth, as of last week, £625,000, it’s quite an exhilarating feeling, I can tell you. Oh!

Now shiny gold bars aside, another thing the Bank of England does that perhaps seems a little more run of the mill is issue currency.

Unnamed speaker
 . . . It’s made through within the bank . . .

Claer Barrett
When we came into the building, we went past this desk. It’s a grander version of the counter that you get in any bank branch. There was a queue of people stretched out through the big arched doorways, waiting in line with wallets of old or damaged banknotes. (Sound of a money counter) You can hear the cash counter there, that thrumming noise, counting their old paper notes to exchange them for new polymer ones. And the reason I am here is because the Bank of England is actually in charge of the physical cash supply in the UK. Any notes or coins that you have in your pocket will have been managed and administered by them at some point.

Sarah John
Hello, how are you? Has it . . . 

Claer Barrett
And today I’m meeting chief cashier Sarah John.

There were some people in the queue in the banking hall downstairs who had bits of notes, like ones that have been torn in half or damaged, or paper notes that have gone through the washing machine.

Sarah John
We call those the mutilated notes . . . 

Claer Barrett
Mutilated notes?

Sarah John
Mutilated notes. Exactly. But if you do have a note that is damaged, we will exchange it. And there are some rules on our website, some forms that you can fill in. You can send it to us, though. And that note will still be worth, if it’s a £5 note, it will still be worth £5 to us. So even if your dogs got hold of it and had a good chew, you can send it in to us and we’ll give you a nice new £5 note.

Claer Barrett
Sarah knows all there is to know about cash. So the reason I’m here is to ask for her insider view on a trend I’ve been noticing for a few months now. Over the past couple of years, cash has been quite noticeably disappearing from our lives. Since the pandemic, hundreds of bank branches and ATMs have vanished from our high streets. More and more shops take card and contactless payments only. But in recent months, I’ve seen a budgeting technique circulating on TikTok and Instagram. People who are ditching their bank cards and turning back to cash to help them budget and control their spending. So in the cost of living crisis, is cash making a comeback?

Unnamed speaker
So tomorrow is payday and it is time to see what is left in my cash wallet . . . 10, 20, 20, 30, 40, 60 . . . Five . . . One . . . 50.

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Claer Barrett
Welcome to Money Clinic, the weekly podcast from the Financial Times about personal finance and investing. I’m Claer Barrett, the FT’s consumer editor.

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In today’s episode we’ll be exploring the world of cash. Is going cardless the ultimate budgeting hack? And is cash use really on the rise?

I’ll be back in the Bank of England hearing more from Sarah John in a moment. But first, I wanted to speak to someone who has found using cash to be a life-changing budgeting technique.

Euphemia Senna
I was married for nearly 15 years and the marriage dissolved and I ended up being homeless with my three children living in a room and in a lot of debt.

Claer Barrett
That’s Euphemia Senna, otherwise known as Phem or more widely known by her TikTok handle She’s On A Budget. She began looking into money management tools, trying to figure out how to get herself out of debt.

Euphemia Senna
I then found Dave Ramsey.

Claer Barrett
Oh, the US financial guru.

Euphemia Senna
Yes. He had a lot of values that were similar to mine and I took up his cash envelope method.

Claer Barrett
The cash envelope method, a.k.a. cash stuffing. It’s basically separating your money into different envelopes of cash to control your spending. We’ll hear more about that in just a moment.

Euphemia Senna
I started to see that I could save money even though I was on a really low income. I started to see that I could pay off, like, pay towards my debt on a regular basis, because sometimes I start and stop and things like that. And yeah, it just, it took me to the point where 10 months later I was debt-free and I was, I saved at that point about £5,000.

Claer Barrett
In just 10 months, Feem had got herself out of debt and had £5,000 saved up in the bank. So how does she do it and why is cash the key to her budgeting success?

Now, Euphemia. Can I call you Phem?

Euphemia Senna
Mm-hmm.

Claer Barrett
Now, You are TikTok-famous because you are the number one account in the UK for a phenomenon known as cash stuffing. Can you explain to the uninitiated what cash stuffing means?

Euphemia Senna
Yes. So cash stuffing is a budgeting method that is not very new. It’s been around for a long time where people will put money into envelopes with different categories on them in order to manage their finances.

Claer Barrett
So they’ll get their monthly pay.

Euphemia Senna
Yeah

Claer Barrett
But they’ll separate that into . . . groceries, for the . . . 

Euphemia Senna
Groceries, petrol, utilities, and they’ll deposit money into their weekly or however often they get paid.

Claer Barrett
So when you get paid, you go to the bank and take out a load of cash?

Euphemia Senna
So when I get paid, I write a budget and that will include any direct debits that are due to come out. So those direct debits will, that direct debit money will stay in the bank and the remaining money will be withdrawn in cash. So that is what I use to stuff (inaudible) yes, that is the money that I use to stuff into my envelopes. So it depends on, I say, what your goals are as to what the categories will be for those envelopes, but I tend to leave the money for direct debits, rent, et cetera in the bank, and just withdraw the remaining funds.

Claer Barrett
For people who are listening, thinking, could cash stuffing work for me, tell us what the pros and cons of this method are.

Euphemia Senna
I’d say the pros of using cash stuffing is that I think it’s a quite a simple method that most people can take on, most people can align with. It helps you to break down your expenses. It helps you to categorise your expenses and put them into little pots, and it helps you to see a way to budget your money. And I think most people can, you know, can benefit from that.

Claer Barrett
How would somebody start if they were completely new to this?

Euphemia Senna
If they were brand new, I’d say the first thing you need to do is to write down your expenses. Like all of your expenses. I think we forget certain ones. Like you might have a subscription that comes out every three months, so you might have something that comes out. But you do need to write down every single thing that is gonna come out of your account at some point.

Claer Barrett
Water bills, water bill twice a year.

Euphemia Senna
Exactly. Everything has to be written down. And then you get basically a big calendar and you start to map out when these payments are gonna come out and hopefully meet some money, have some money ready to meet those payments when they’re due so that you don’t have to worry about paying for birthdays when they come round. You can pay towards them every week rather than having to fork out hundreds of pounds for your child’s birthday. So it helps to break down really large expenses and helps you to budget and manage them over a weekly basis.

Claer Barrett
Now, your videos online are hypnotic to watch. You’re counting out the cash.

Euphemia Senna
(Flipping through bills) Let’s do our cash count for this week’s stuffing, starting with our fifties. We have 50, 100, 50, 200, 50 . . .

Claer Barrett
And then you’re counting £10 into the Christmas envelope . . . £10 into the birthday one (Flipping through bills) . . . £50 into the energy one.

Euphemia Senna
I’m going to be adding £50 in this week. We currently have 50, 60, 70, 80, 90, 110, 120, 130, 150.

Claer Barrett
Until we’ve counted out the whole pile.

Euphemia Senna
And that is all done.

Claer Barrett
I mean, do you think having a physical connection with how much money you’re holding in your hand is significant psychologically in some way?

Euphemia Senna
It’s insane how we’ve become so used to tapping things away and being desensitised by spending money. I don’t know. There’s that, there’s a different feeling you get when you hand over a note to somebody and you receive a purchase as opposed to tapping your card. And I think that that’s why, that accounts to a lot of people being in debt now. It accounts to children not understanding the value of money.

Claer Barrett
For the first time in years, if you did put your money into a bank account, you could get an interest rate of maybe 4 per cent, 5 per cent on the very best accounts. But if you’ve got the money in cash in envelopes, you can’t attract those savings. How do you justify that one?

Euphemia Senna
That’s something that comes up quite a lot and I think it’s about what you, what matters to you at that time. What is your goal? So I suppose you have to think about where you are. What’s your starting block? Is that a priority for you? If it is, then, you know, maybe you do need to put it in the bank. But if it isn’t, which for a lot of people isn’t, they haven’t got the money to save anyway. This is just about managing their money, so it’s an outlet for them. A lot of people that have come to me, we even set up a group on TikTok called Card Tappers Anonymous (surprised laughter) because we all feel like it’s the card tapping for us and any system wherein we have to use, you know, a banking system separate, like, any of those systems, we’ve used them all and they don’t work because we are in a position where we don’t trust ourselves yet with having our money in the bank. We don’t trust the banks. Many things.

Claer Barrett
You mentioned trust in banks. Tell me a bit more about that.

Euphemia Senna
I think that it feels like everything’s set up against us, the poor people of society. It just feels like the banks are set against us. How we ever meant to get out of this system. We’re in a loop of having overdrafts in debt, taking out loans, and the money isn’t there to meet them. I think people fail to realise that banks sell products. They’re not your best mates. So I think when you start to look into things and you realise how much it is pivoted against you, yet there is a distrust, it’s bound to happen.

Claer Barrett
So cash stuffing has clearly helped Feem and the people in the She’s On A Budget community to better manage their money. But beyond being a trend on TikTok, is cash use actually on the rise? (Thud sound)

Let’s go back to the Bank of England and its grandiose corridors to speak to the woman who is in charge of the UK’s cash supply. Now, if you’ve got a note on you, take it out of your pocket and have a look in the top left hand corner. On every single note, you’ll see the signature of one woman, Sarah John. In times gone by, the chief cashier would have signed every single note by hand. But these days, it’s part of the printed design.

Sarah John
My job is to be responsible for issuing high-quality banknotes that people can use and spend with confidence. So I’m responsible for everything from that design, that production through to their printing. Getting them out there so that people can actually use them. And then at the end of their life, all the banknotes eventually come back to us and we destroy them.

Claer Barrett
I mean, I knew that coming in to the Bank of England would be an amazing experience because it is an incredible building. But, I mean, I have to say, your offices, it’s beautiful. It’s wood-panelled, it’s beautiful crenellations all over your ceiling. You’ve got a view out the window, presumably into the internal court of the . . .

Sarah John
 . . . that’s the gold bullion yard.

Claer Barrett
The gold bullion yard?

Sarah John
That’s where the gold gets delivered to be taken into our vaults. There’s no trucks there at the moment, but occasionally you do see, well, come in and you see all the shiny gold come off the back of it to be transported into the vaults.

Claer Barrett
And you can just come peer around from your desk as you’re, like, eating your lunch and think, Oh, yes, that’s the gold delivery coming in on time.

Sarah John
Yeah, I’m responsible for the gold in the vaults as well. So it’s part of my job to oversee that as well.

Claer Barrett
Now, why is it, Sarah, that cash withdrawals could be on the increase again when we know from Covid and lockdowns that’s had such a negative effect on cash use?

Sarah John
We are definitely seeing lower levels of cash use for transactions than we saw pre-Covid. So at that stage, and we’re not expecting to go back actually to the levels of cash use we saw, say, in 2019 pre-Covid. But we are starting to see people’s behaviour reverting, going out more maybe to pubs, restaurants, those sorts of venues where cash use is perhaps was a bit higher in the past. But also with the cost of living, we often see people turn to cash in times of difficulty, basically for budgeting purposes because it’s so tangible and people like to use it because it’s very physical and they know how much money they’ve got and they know when it’s gone.

Claer Barrett
So Sarah says cash use is actually still declining compared to pre-Covid times. But what are the reasons why?

What can you tell us about what the Bank of England is doing to ensure that cash does have a future as more bank branches, cash points, close, and more retailers say that they don’t want to accept cash anymore?

Sarah John
My job is to make sure that people have got the banknotes that they want to use and they can use them with confidence. But the biggest challenge that we face is that with smaller numbers of notes being used for transactions, the sort of unit cost of processing the notes that are used goes up because there’s a huge amount of fixed cost associated with the infrastructure. So what we’re trying to do, the Bank of England — and we’re, there’s legislation going through parliament at the moment to give us increased powers here — is working with industry to make sure that the infrastructure that sits behind the ATMs, behind how people actually get that cash, is sustainable going forwards. So that it’s, you know, it might need to shrink a bit, but it’s not going to shrink so much that we get to certain parts of the country with no notes available. So it’s about making sure that we have a right-sized and efficient cash system that sits behind all the stuff that people see, day in, day out.

Claer Barrett
So the Bank of England is committed to keeping cash in circulation. But one of the problems with the cash stuffing system is the difficulty of getting your hands on cash as banks and ATMs close. The Nationwide Building Society has bucked this trend by promising to keep all its UK branches open, and it reported a 19 per cent rise in cash withdrawals last year, the first time it’s seen an increase for 13 years. Nationwide is convinced that the cost of living crisis is prompting more people to use cash, even though the national picture shows cash use is still falling. But while we might be less likely to pay for things in cash, that doesn’t mean we’ve given up on cash altogether.

Now, there’s one paradox about cash that I’d really like you to address, which is the fact that while cash use is falling, there’s never actually been more cash by value in circulation, about £80bn worth, according to the Bank of England’s website. I mean, how can this be? We’re not spending the cash in the shops, but we’ve got more of it hanging around than ever before.

Sarah John
That’s absolutely right. People are often really surprised when I tell them this, but we estimate that only about 20 to 25 per cent of the notes that we issue are used for transactions.

Claer Barrett
Right.

Sarah John
So the rest of those notes are used for what we call store of value. So they’re basically notes that are being held in people’s houses and businesses stored at safes, stuffed under mattresses for a whole variety of different reasons.

Claer Barrett
So even if all that cash is mostly stuffed away somewhere, I wanted to find out who is still using it and why.

Sarah John
It is definitely a trend that older people tend to use cash more. And that’s absolutely consistent with the fact that it’s that convenience. It’s that familiarity with using cash, as they have done for much of their lives.

Claer Barrett
It’s not just people who are older and younger who like using cash. It also depends partly on where in the UK you live.

Sarah John
That’s right. When we asked in London, we find that 50 per cent of people have been in shops in London in the last month that haven’t taken cash. But in the north-east of England, that figure’s only closer to a quarter of people having that experience.

Claer Barrett
Now, cash stuffing, which is what we’ve been looking into in this podcast, it’s a subject that’s generated incredibly over 800mn views on TikTok this year because young people in particular are so drawn to the idea of using cash to budget. But this isn’t a new phenomenon.

Sarah John
No, absolutely not. I mean, many people might remember parents or grandparents (clears throat) putting cash in jam jars, for example, and things like that. So it’s actually a very traditional way that people have of budgeting. It’s one of the main reasons that people want to use cash. But obviously with social media, it’s got a new lease on life.

Claer Barrett
Now, one of the things that Euphemia told us about cash, she thinks that it’s becoming more popular to hold cash right now because people are increasingly mistrustful of banks and other financial institutions, which is not a nice thought, but certainly something that she really believes.

Sarah John
It’s interesting. I don’t know how much that is a driver of what’s happening today. Certainly historically, we have seen that sort of behaviour. So in 2008, when Lehmans went bust and there were a number of other banks in trouble, we did see a big demand for cash as people withdrew money from banks because they didn’t trust the banking system. The thing that’s changed today, of course, is up to £85,000 is guaranteed by the FSCS. So hopefully that gives people today a bit more confidence in the security of their money in a bank perhaps than they had before that came in after the 2008 crisis.

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Claer Barrett
Finally, I wanted to come back to Phem. The wider picture shows us that cash use is falling. But Phem is living proof that switching to an almost cash-only lifestyle can have a huge impact on our ability to budget.

So Feem we’ve heard from Sarah John there that cash use in the UK is still declining, but do you think that the cost of living crisis could see it make more of a comeback?

Euphemia Senna
Definitely. Definitely. I think the need for ownership with people, I feel like they’re having their homes taken away from them. They’re having their wages, you know, being reduced or they’re having so many things taken away from them at the moment that they wanna hold on to something. And I think this more than, this time more than any, people want to take charge and feel empowered by something. And I think cash does that. Having your own money on you enables you to feel like you’re taking stock of something. I think for me, I was just so surprised that I was able to save, like, having like £500 in cash to me was insane because I’ve never had that amount of money before.

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Claer Barrett
That’s it for Money Clinic this week, with me, Claer Barrett. And we hope you like what you’ve heard. We’re always looking to chat with people about their money issues for the show. So if you’re interested in being part of a future episode and are looking for some expert money advice, then email us, money@FT.com. You could also take a peek at our website, FT.com/money, grab a copy of the FT Weekend newspaper, or follow me on Instagram @ClaerB.

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Money Clinic was produced in London by Persis Love. Our sound engineer is Breen Turner and our editor is Manuela Saragosa. You heard original tunes this week by Metaphor Music. And finally, our usual disclaimer: the Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that you’ll need to find an independent financial adviser. That’s all the small print for now. See you back here next week. Goodbye.