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I’m not a doom monger, in fact, I’m pretty much a techno-optimist. That said, it seems to me the internet isn’t as stable as it used to be. I keep hearing reports of data centers going down and chunks of the web having issues, which knocks out various consumer-facing applications. Some outages are trivial, social media going dark for a few hours, but others are more serious, like payment system failures.
In my day-to-day life, I simply don’t use cash. It’s a bit of a hassle, honestly. Digital payments are simple and far more convenient. I used to keep a $20 bill tucked under my phone case for the rare retailer that didn’t take cards. But with what seems like an uptick in payment issues, I’ve increased this “just in case” stash to $50.
On the home front, I’ve always kept a few hundred dollars in the safe, it just seemed prudent. Recently, though, I’ve thrown caution to the wind and upped our cash reserve to cover a full month of spending. Maybe a bit excessive, but it’s not costing much in growth potential, and I look at it as a premium for short-term disaster insurance.
I’m definitely not a prepper, but the small opportunity cost seems like a reasonable hedge against what appears to be increasing structural instability in online systems. So what do you think, am I being a little over the top?
I always keep some cash stashed at home. Having lived through Hurricane Fran back in 1996, when power was out for a week, I put together an emergency stash containing 50 ones, 30 fives, 20 tens, and 5 twenties. I also keep some larger bills on hand for paying the few things that still call for cash, and I replenish this when it gets down to a few hundred. The smaller bills come in handy if your power is out for a week. It is good to have close t correct change if whoever is selling does not have change. It is also good to have at least 100 miles or so worth of gas in the car, because gas pumps don’t work when the power is out.
Good idea, my cash is all 20s or larger; I’ll rectify that.
This reminded me of an old customer of ours, apologising that the cash he paid with was wet. He didn’t believe in banks, so had all his money buried around his property. Unfortunately he had recently been flooded.
(Side note – in Australia, and we use plastic notes that aren’t affected by water).
I hope he had a good memory 😁
Interesting topic. Doesn’t sound over the top to me. We always have a little cash in the house; definitely carry a few days worth when traveling. To me an interesting related topic is whether it’s wise to centralize all financial accounts at a single financial institution. I happened to recently hear Geoffrey Hinton (the 2024 Nobel winner in physics for his work in AI) mention this topic in an interview. He specifically mentioned the heightened cybersecurity threat from AI and that he’s personally distributed his financial assets for that reason. Although not due specifically to the AI threat, my wife and I had made a similar decision a while back to spread our liquid assets across a few financial institutions with the goal of maintaining access to some funds if either one of our accounts, or the financial institution itself, was unavailable for a protracted period of time.
Agree. Lots of folks tout consolidating into one provider, and we’re mostly at Fidelity, but we will always have at least one other.
Reading your other comment below, do you mean Fidelity, Schwab and Vanguard have different security strengths and weaknesses, or do you mean more generally?
I was referring to security, but thinking about your question I do think it applies generally as well. For example, my wife did a Roth conversion last year on Vanguard and it took a few days to “finalize”. I did one on Fidelity this year and it happened instantly. Not really a big deal, but I liked the experience on Fidelity more.
Thanks. I knew, or should say assumed, that they had different strengths and weaknesses in general, but I wouldn’t have necessarily thought they would have significant ones in the security area.
As I read your response, it’s the security differences that drive you to keep assets at all three. Reading between the lines, you judge all three to be good, or you’d have no money there, but all three have vulnerabilities, and you spread assets among all three because you assess their vulnerabilities are different.
Exactly. For example, I would assume both Vanguard and Schwab will ultimately update their applications so the user can disable ACATS transfers from the application. It just seems like a no-brainer. So yes, security is the main driver for me to spread my money around. Tightly connected to security is access. If a bad event occurs and things get worked out completely to everyone’s satisfaction, funds might still have been unavailable for an extended period of time while things are getting sorted out. So I consider access tightly coupled to security. I should also say that although my career was in IT, cybersecurity wasn’t my area of specialization so don’t overweight my comments on cybersecurity. I’m just commenting on things fairly obvious to anyone who’s trying to keep an eye on current scams/threats to their financial assets. Gene
Thanks Gene, that makes good sense. And it seems to mitigate this risk, it’s not necessary to split assets say in thirds or even have a two digit percentage elsewhere, but just have a decent accessible chunk that would get you through x number of weeks, months, as one sees fit.
We’re mostly at Fidelity but have a very sizable chunk elsewhere, so have felt good about that. But, that’s in 401(k), so not easily accessible. Thinking I need to move a bit to a taxable account elsewhere. Thanks for making me think of this.
I read an article on this recently. The problem is that no one maintains a central registry showing which banking groups rely on which cloud providers for their payment systems. This makes it difficult to assess concentration risk. The article’s premise was that government should force financial institutions to disclose the information.
That’s a good point and certainly applies to my comment. However, cloud provider concentration risk only applies to a certain class of problems. Unfortunately there are many many more that are independent of who the cloud provider is, but rather are dependent on the technology being deployed. Recently many banks have disabled voice authentication because AI’s can now easily defeat them. Doesn’t matter who the cloud provider is, but rather whether the customer is still using voice authentication. Another example, the Fidelity application allows the customer to lock down their accounts to prevent ACATS transfers. Schwab and Vanguard don’t yet have this feature. Has nothing to do with the cloud provider. Personally, I think each has their strengths and weaknesses, so my wife and I use all 3 of them for some of our funds.
There is a nice grocery store near our home where a young man with Down’s Syndrome bags groceries. His name is Steve, and my wife and I will slip him $5 for bagging our groceries which puts a huge smile on his face. Carrying a little cash allows you to be a serendipitous in your generosity, and increasingly when eating out where I live, allows you to avoid the 3% credit card fees small restaurants are often adding to the bill. As my accounting professor said one evening, “Cash is king.” 🙂
I’m not going to keep a bundle of cash “just in case.” If there’s a prolonged tech failure, I doubt the money would save us. I imagine that in the case of such an emergency most businesses would have to shut down, and spending would come to a grinding halt. Like most people, all my bills are on autopay— I have no idea where I’d even go to make payments. And there probably wouldn’t be anyone there to receive the money.
I should have been clearer with my meaning. The monthly cash I hold is the average amount I would spend on groceries, gas, and other consumables, not utilities etc. I seriously doubt the retail world would grind to a halt. I think you would be surprised how resilient retail businesses would be to a prolonged technical outage, especially smaller outfits.
Think about it—retailers don’t hold big inventories these days. How would all the small outfits get resupplied? Just think about buying gas— after the first people with cash drain the storage, how is a new supply going to be obtained?
We all have different opinions on this. I’m confident that having cash would put me in a stronger position during the first few weeks of a payment system failure, before government intervention creates a solution or workaround. When resources are limited, a local retailer will accept cash over an IOU every time. First mover advantage with cash would be key. Stores would close, but not until available stock has been shifted to generate liquidity from cash paying customers. I’m comfortable holding a few thousand in cash as insurance against a black swan event. What’s the disadvantage, a $100 lost interest? You would spend that on a night out for one person.
The cash from folks like you would definitely create a security problem. I don’t think that it would take thieves long to figure out your small outfits were easy prey with no way to contact law enforcement.
its not that I’m too cheap to lose a little interest. I just think the exercise is pointless. Like it or not, we’re dependent on all those transactions in the cloud.
I’ve always kept some cash. A few years ago I stopped at a filling station and the credit card system was down. Glad I had the cash. On occasion at a restaurant I’ll pay the tip with cash when the tips aren’t shared.
Carrying ~$50 isn’t over the top at all.
On a day to day basis, it’s very rare we actually use cash. But we always have it.
We’re different than most people because we could be anywhere, not down the street from our home. We both have local currency in our wallets wherever we are, and in addition, some US $ hidden away. The greenback still talks in a pinch.
When I was traveling, which was admittedly before people started paying with their phones, I had local cash in a wallet in my day bag, several days worth in my money belt along with an ATM and credit card, and US cash plus additional cards stashed in a couple of places in my hotel/B&B room.
I’m curious. If you’ve ever travelled to the UK or Ireland, do you tip?
Yes, all the time. Usually paying with my phone and just add it to the bill before tapping.
Michael – we haven’t traveled as extensively as you, but in most foreign trips I’ve taken (OK, not India), the US greenback is always accepted as a tip, and sometimes for purchases in lieu of local currency . We typically get some local currency for trips, and like you, keep both available.
We always use local currency if possible. The U.S. cash we carry is for emergencies.
You will pay a premium for using USD. The person you are tipping will have to exchange the dollars and will also lose on the exchange. It is only polite to use the local currency – and to follow local tipping customs.
Sure— that way the traveler loses when making the initial exchange and then again when converting back to their own currency. I don’t know about you, but I always wind up with cash at the airport that I exchange at a horrible rate. And then there’s the change that’s useless unless I see a charity container where I can donate it.
I never exchange at the airport, although I do use ATMs on arrival. I use an ATM card that doesn’t charge foreign conversion fees. I have a small stash of left-over currencies in a desk drawer – I expect to use the GBPs next year – but towards the end of a stay in a given country I will start paying cash if it looks like I’m going to have an excess. If I’m crossing a land border I’ll exchange at the border. If you fly American they will collect coins on board for charity.
The exchange rate you get when paying in USD instead of the local currency – which in any case is only likely to work in over-touristed areas like cruise ports – will be worse than even an exchange bureau.
On occasion over the years, we’ve bought foreign currency from friends and family and, on the reverse, have managed to offload some United Arab Emirates Dirham and Indian Rupees to friends—a sort of informal F/X exchange.
We generally don’t worry about getting rid of foreign currency. Usually it’s pounds or euros, so we’re confident we’ll be back within a year.
🙂
Someday we won’t of course. Hope that day is a long way off.
Don’t get me wrong— I do tip but I also charge everything. Last year upon arrival at heath row, I did get $100 with my ATM card. That was the entire cash my daughter, granddaughter and I had for our entire stay. Still, wound up before the flight buying stuff in the airport to get rid of it — aa didnt do an in flight collection. The money is in a drawer.
i don’t see any of this a bad US tourist behavior. We spend the summer in upstate NY. You wouldn’t believe the amount of Canadian money that gets passed there!
There’s a difference between people just over the border using their currency, and people from the other side of the ocean, or the world. Especially when it’s Americans. It looks like cultural imperialism.
I don’t understand your rationale- if Canadians pass off their change, which has a lower exchange vs US, to a busy store clerk, you think it’s ok. But if a US traveler gives US currency, as a tip, that’s cultural imperialism? Way over the top!!
I like to keep some cash in my wallet. There are times when cash is way more convenient (and sometimes way cheaper) than using a card. I play pool on Thursday nights with a group of friends. We usually put together a tip for the bartender who gives us the balls and assigns a table (no table charge if we’re buying food/drink). The main issue for me is maintaining a supply of one dollar bills. ATMs only distribute twenty dollar bills.
But – – – a month’s supply? Nope. I’d say my wallet typically holds between zero and $100, and only rarely more than that.
Yeah Jeff, I’m sure I’m being a bit OTT. But it keeps me happy 😁
That’s an interesting idea. I’m not sure how logistically I’d even pay most of my bills if all the technology went down, but having adequate cash for groceries, pharmacy, restaurants, and gas stations seems prudent.
David, it’s not an actual product, just a turn of phrase. I was equating the small amount of interest lost from holding cash to the concept of paying an insurance premium for a fictional type of disaster insurance.
Mark,
Would you please expound on “short-term disaster insurance?” I have never heard of this.