Thread: Cash holds cachet with Latinos

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Cash holds cachet with Latinos
Study finds paper money's use rising

By James P. Miller and Sara Olkon
Tribune staff reporters
Published May 23, 2007


Chicago's status as a major portal for Hispanic immigrants may also be putting the city at the forefront of an emerging monetary trend -- a rise in the use of cash, and more specifically, Benjamin Franklins.

Logically, demand for paper money should be on the wane. After all, for most Americans paying cash for goods or services is becoming increasingly rare. Credit or debit cards to pay for everything from gasoline to restaurant dinners to groceries is now the preferred method for many people who no longer need to carry big sums of cash. Sometimes we no longer reach into our wallets at all: As our cars speed along the state's tollways, electronic gizmos silently draw money out of our accounts, eliminating the need to stop and hand over money.

But even though the nation's transition away from cash should be reducing domestic demand for actual, paper money, it turns out that that's not the case. Instead, the amount of currency in circulation has been rising for the past several years, three researchers at the Federal Reserve Bank of Chicago point out in a new study.

The upward trend "is at odds with the generally accepted view that cash is on the way out," Fed economists Carrie Jankowski, Richard Porter and Tara Rice concede in the latest issue of "Economic Perspectives."

Though nobody's exactly sure why the amount of money in Americans' hands has reversed course, the researchers put forward an intriguing possible explanation. Based on an in-depth review of the movement of currency into different Chicago neighborhoods, they note, demand for cash -- and for the $100 bill in particular -- is unusually strong in neighborhoods with a large population of Hispanic immigrants. And that's because many residents of those neighborhoods, for some very specific reasons, use banks less than other groups.

In immigrant-heavy neighborhoods like Pilsen and Little Village, in other words, cash is king in a way it is not several blocks away in Lincoln Park or Lakeview.

To a greater extent than other ethnic groups, the study notes, Latin American immigrants appear to hold the cash they acquire rather than depositing it in a transaction account.

Overall, the researchers point out, about 8 or 9 percent of U.S. households have no checking account, savings account, or any other kind of relationship with a bank. But among lowerincome immigrants from Mexico, the Census Bureau has estimated the percentage of unbanked households stands at a whopping 53 percent.

Many such immigrants entered the U.S. illegally and don't have official identification, like a Social Security card or a driver's license, which many banks require for opening an account. Others hold back because of language barriers. And many older immigrants simply don't trust banks, because of bad experiences with bank failures or other financial-system crises back in their home country.

Rare is the day Cleto Alvarado, a fruit vendor from Cuernavaca, pulls out his plastic. It's just easier this way, Alvarado, 52, said in Spanish, handing a supermarket cashier a 10-spot for $3.50 in bags of ice in Little Village on Tuesday. Even on larger grocery runs, cash is king for him. He has been in the U.S. since 1982.

He worries most that he will be overcharged by the banks if he goes electronic. This way, he said, he knows exactly what he is paying.

"Centuries will pass and people will still use cash," Alvarado said.

At J&M Hair Designers nearby on 26th Street, Placida Gabino, 26, came in to get blond highlights for her long, auburn locks. She came ready to pay $70, before a tip, for the service. Gabino, a native of Mexico City who cleans rooms for a hotel, said she's never even applied for a credit card.

"Why? I'm just fine like this," she said in Spanish, shrugging her shoulders as her stylist painted blue-tinted paste atop a long strand.

Antonio Gutierrez, the owner of Supermercado La Estrella on 26th Street in Little Village, brought in a credit card machine for customers about a year and a half ago. On a typical 14-hour day, no more than a handful of customers bother to use their cards, he said.

He understands why. A 60- year-old native of Jalisco, he's been in this country for 40 years, but still sticks mostly to cash. He keeps one credit card tucked away for emergencies. He avoids automated teller machines. He doesn't even use the card for gas, despite the convenience factor.

"I don't like them," Gutierrez said in Spanish. "I don't have control. What if it charges too much"?

For many immigrants, cash as a way of life starts with payments in folded-up bills from employers who keep the workers off the books for a number of reasons. If you don't have a bank account, where are you going to store your wealth, study author Porter noted in an interview. The answer, he said, is cash. And in economic jargon the $100 bill, the nation?s biggest, represents the most expedient and space-saving store of value.

Of course, cash has historically been the hallmark of the underground economy, the payment preferred by drug dealers and other criminals, and a favorite of tax dodgers as well. But as the Fed economists point out, on a statistical basis the incidence of crime or tax cheating probably hasn?t changed enough to generate the recent rise in demand for paper money.

What has changed, they note, is the growing number of Hispanic immigrants present in the U.S. The hypothesis that a growing Hispanic population could be the source of rising currency demand is supported by the fact that two regional Federal Reserve banks in areas with a significant and growing Hispanic presence -- Chicago and Richmond, Va. -- are seeing the most pronounced upturn in demand for cash.

To test their idea, the Chicago Fed researchers tracked the flow of bills from the Fed?s downtown vault to hundreds of banks in 175 Chicago-area ZIP codes. They found no significant difference in demand for $5 and $20 bills across the city. But demand for $100 bills is markedly higher in neighborhoods with a big immigrant presence.

Despite their reluctance to use banks, Hispanics are big savers. The hundreds they stash away, the researchers say, often are carried once a month to a local Western Union outlet, and wired back to family members still in Mexico. Likewise, the researchers point out, many Hispanic immigrants make once-ayear treks back home, and often carry as much as $3,000 in U.S. currency back with them. South of the border, the authors note, such funds have their uses. Among other things, they note, the coyotes who help undocumented workers make their illegal crossing into the U.S. accept payment only in dollars.

In Chicago and other heavily Hispanic markets, though, there are early signs that cash's current comeback may not last.

Supermercado La Estrella's Gutierrez said he notices a change among second-generation Mexican-Americans, including his own kids, for whom credit and debit cards are much more popular.

True to form, one of his parttime cashiers, Karen Soto, 17, said she can't wait to apply for a debit card. She plans to open a bank account as soon as she turns 18.

Sal Pedroza, chairman of the Little Village Chamber of Commerce, said cash-only service was "very typical" in the smaller stores in Little Village. But he said more businesses are accepting credit and debit cards, a move he applauds.

"It's improving the service," said Pedroza. "It's faster."

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If you have any sense at all, you don't conduct illegal activites with credit cards or use bank accounts. Cash is not traceable, unless it was handed to you by an undercover officer or has dye all over it from a bank heist.

Dixie