Cash in the Wallet

14 11 2016

The announcement on November 8th by government to demonetise Rs 500 and Rs 1000 currency notes came like a sudden surprise to Indians. This announcement was followed by one day of banks ATM closure and an additional day of ATM closure.

Even the tax paying, educated middle class, who had nothing to hide by way of black money, was confronted with the challenge of how to pull through the next few days expenses with minimum cash using the lower denomination notes of Rs 100, Rs 50 and lower.

Even after the banks and ATMs opened from 11th November onwards, there were limits prescribed by RBI for exchange, withdrawals and ATMs. Also, the queues were very long and there was considerable pain to be experienced in withdrawing one’s own money.

That is the time, when I was faced with a question of how much cash to withdraw and keep in the wallet. In days when banks and ATMs would be functioning normally, I would draw a large amount in the beginning of the month for all the monthly payments and then I would withdraw a smaller amount sometime in the middle of the month for the  rest of the month’s expenses.

By withdrawing nearly 15 days expenses at one go, I was essentially losing out on some savings bank interest and also running the risk of losing money, if I lose the wallet. But this costs and risks were entirely mine. But in a cash crunch, if I overdrew, someone else was not getting the essential cash for their needs.

I knew that cash in the wallet or house is a psychological thing. So, I ran a straw poll among my friends on Facebook. I asked them, how many days expenses they would keep as cash in their wallet or house. There were 23 responses in all.

A. Less than 2 days – 3
B. Between 2 and 4 days – 2
C. Between 5 and 7 days – 8
D. More than 7 days – 10 

It is a biased sample of my friends so they are majority male, urban, salaried class, highly qualified people with families. The median age would be 45 years.

From this poll,it appears even when people have cards and electronic wallets, they find comfort in keeping 7 days or more expenses in the form of cash in their wallet. Many mentioned that they have 15 days of expenses in the form of cash with them.

My friends seemed to be quite like me. But it set me thinking, is this appropriate in this time and age ? Is there a need for so much cash in the wallet or home ?

Talking for myself, I reflected on why I was keeping 15 days expenses as cash at most times. I could think of the following reasons :

  • Habit –  Being a salaried person, most expenses are bunched at the beginning of the month. Going to bank in the beginning of the month and withdrawing money for monthly expenses has become a habit. The only change now is instead of walking into a bank branch, I visit the neighbourhood ATM.
  • ATM limits – As there are upper limits of daily withdrawal in most banks ATMs, I am compelled to go one more time at least during the month. This I normally time it in the middle of the month or when cash situation reaches below a limit.
  • Comfort of cash – Despite the cards and PayTM, when I set out of house I feel there should be enough cash. Just in case, I need it.No logic. I am gone past the age when I used to keep less cash in the wallet to avoid impulse purchases. These days, most spending is done on the cards and yet the cash continues to occupy the wallet. While travelling this fear multiplies, even when I know most airports and cities I go to have ATMs.
  • Emergency – As a family person, one wants to be prepared for a sudden health issue or be prepared to travel at short notice. But actually when they come, the 15 days expenses that you keep in the form of cash may be too less, so you end up rushing to an ATM immediately. Also, most hospitals and airlines would accept cards.

Most people of my age who started earning and spending money before the cards and ATM era, would continue to believe and hoard cash than is necessary because of old habits. This demonetisation exercise gives us a chance to recalibrate our cash requirement.

 

 

 

 

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