How Our Check Use Has Changed

Long ago, nations like Denmark, Finland, and the Netherlands eliminated the check. Still now, though, the United States is a country of check users.

Check Use

Because check use is age related, it is most likely that we will see grandma and grandpa writing checks:

However, they, and the rest of us, are paying our bills with fewer checks. Below, total payments are per month:

And now, those check writing numbers will plunge further.

As of September 30, we cannot pay the federal government with a check and it will not pay us with one. According to an executive order from President Trump, all government disbursements will go to our digital wallet. That means we no longer get a Social Security check. Like vendor payments and tax refunds, all will go to our digital wallet, our debit card, or as a direct deposit. Correspondingly, we are not supposed to send them a check.

Our Bottom Line: The Psychology of Checks

As an easy way to spend money, checks let us use our demand deposits. Knowing that the basic money supply (M1) includes currency, other liquid deposits, and demand deposits, we can ask if the same psychology applies to each MI component. Because all are relatively liquid, checks could be compared to cash by the people that use them.

At this point a scientist could remind us that the pain receptors in our brain are activated when we spend cash. Agreeing, a behavioral economist would say it’s loss aversion.  Since spent money is invisible when we use plastic or our smart phones, our loss aversion diminishes. On the other hand, with less of a cash stash and a diminishing demand deposit, the spending pain increases.

At this point, we can conclude by asking the behavioral significance of the President’s mandate. Because the studies I could locate have no data for the psychology of spending checks (because they are a dinosaur?), let’s end with the electronic direction that check elimination is nudging us. In a recent study, researchers measured the pain created by different payment methods.

Shown by the yellowish dot, cash tops all others:

So, where are we? Erasing checks from our payments menu is just one other way that we become more electronic and less constrained.

My sources and more: Thanks to FT for inspiring today’s post. From there, the President’s fact sheet on “modernizing” payments and the Federal Reserve’s “Diary of Consumer Payment Choice” were helpful. And finally, the ideal complement, this paper added the academic perspective.