Why We Should Abolish The Penny And Save Billions

by KNS Financial on March 16, 2011


When I was a kid, I always wondered why we needed pennies. They are not as nice looking at the other coins, they usually get dirty quickly, and they fool you into thinking you have a dime when you feel them in your pocket! But now that I am an adult, I have a new reason to dislike the copper (actually, it’s mainly zinc) coins…pennies are a waste of money! Here are a few reasons why we should abolish the penny!

Abolish The Penny To Save Money

It costs about 1.7 cents to make one penny! That means that every time a penny is produced, the government loses money. According to an ABC News article, the U.S. Mint makes 8 billion pennies each year, and this costs them $130 million. Since they are only worth a total of $80 million, that means that taxpayers are losing $50 million each year on the production of pennies!

It gets even worse! The U.S. Mint has acknowledged that the metal in both pennies and nickels are worth more than the value of the currency. A few years ago, there was a law enacted that severely limits both the melting and exportation of these coins.

Apparently, the Mint had been contacted by many people looking to melt down these coins in order to harvest the metals used to make them!

They are now worried that “speculators” could sell the coins as scrap, thus removing them from circulation. Since it is extremely expensive to mint new pennies and nickels, they had to write this new law! To me it would make more sense to abolish the penny and let them be treated as scrap!

Abolish The Penny To Save Time

I have to admit that I have become annoyed while standing in line waiting for someone to fumble through their purse or pocket, looking for a penny! It may not seem like much, but consider this information from a Wasington Post article:

the National Association of Convenience Stores and the Walgreens drugstore chain have estimated that handling pennies adds 2 to 2.5 seconds per cash transaction. Assume that the average citizen makes one such transaction every day, and so wastes (to be conservative) 730 seconds a year. The median worker earns just over $36,000 a year, or about 0.5 cents per second, so futzing with pennies costs him $3.65 annually.

Considering the current U.S. population of around 300 million, this means that we lose over $1 billion in time, just on transactions that involve a penny. However, this doesn’t even take into account the people waiting in line behind the penny pusher! Add an additional 2 customers waiting in line, and we’re now up to $3 billion is wasted time!

I won’t even go into trying to estimate how much time and money is also lost from the simple act of finding something to do with your pennies once you get home from the store!

Limited Use

 

There are a lot of places that don’t even accept pennies! When is the last time that you’ve seen a vending machine, toll booth, laundromat, or pay phone that accepted pennies? Many people simply place their pennies in an old jar, or a 5-gallon water jug.

Here is a great quote by noted Economist Greg Mankiw that explains this problem:

The purpose of the monetary system is to facilitate exchange, but I have to acknowledge that the penny no longer serves that purpose. When people start leaving a monetary unit at the cash register for the next customer, the unit is too small to be useful.

Arguments For Keeping The Penny

There are two main arguments (besides sentimental/historical value) for keeping the penny in circulation:

Higher Prices

People have argued that since abolishing the penny would force stores to round to the nearest nickel (or if we get rid of that waste of money, the nearest dime), people would end up paying higher prices. They figure that more of the transactions would be rounded up, thus leading to higher prices for consumers.

However, that same Washington Post article (linked above) reported the following:

Robert M. Whaples of Wake Forest University has analyzed 200,000 transactions across seven states, and he concluded that consumers would not actually suffer. Purchases at gas stations and convenience stores are just as likely to come to $7.02 as $6.98, so the rounding up and rounding down would cancel themselves out. On average, shoppers would lose nothing.

So you can see that the average shopper would not be adversely affected by the removal of the penny from circulation.

It Would Hurt Charities

There are many charities that raise money by asking consumers for pennies at the register. Since an individual penny is worthless to many people, they have no problem supporting the charity – some actually see it as a service, since they no longer have to waste time finding a place for their pennies.

The argument here is that people will not be able to give their pennies in order to help charities. But this ignores the fact that the charitable organization can simply ask for a larger donation. I don’t think too many people who gave up a penny would have a problem giving up a nickel or dime.

The only way that they would be negatively affected is if more than 80% of the people who gave a penny refused to give a nickel!

Final Thoughts

I really don’t like when we continue to do things in an inefficient manner simply because, “that’s they way we’ve always done it”! Since the penny doesn’t hold much value in the mind of citizens, and it costs more to product than it’s worth, it’s probably time to abolish it!

photo by Kevin Dooley

Reader Questions

  1. Do you currently use pennies for your cash transactions?
  2. Can you think of any other reason why we should keep losing millions of dollars on the penny?
  3. Why do you think there is such a push to keep the penny in circulation? Is it simply the lobbists of the zinc industry, or historical sentiment?
  4. Are you surprised that we are losing so much money on both the penny and the nickel?

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{ 11 comments… read them below or add one }

Credit Cards Canada March 16, 2011 at 12:07 pm

Here in Canada, we are debating this very topic. We presented the Minister of Finance a brief calling for the end of the penny in next week’s budget: http://www.creditcardscanada.ca/news/2011-02-15-penny-brief

BQuestion March 16, 2011 at 4:42 pm

I am very skeptical that any business would round off. If I were a business owner, I would certainly round up only.

There is also the compounding of rounding up from each step in the supply chain. Don’t forget wages: If I made 10.17 per hour, that’s $60 increase per year in expenditure per employee (.03 * 40 hours * 50 weeks).

This only effects changes to current prices. I think there would be a philosophical change in pricing, too. As people think about what can be charged (or what one might pay) for something. Losing granularity typically means figuring in additional buffer. i.e. Higher prices all ’round.

BQuestion March 16, 2011 at 4:45 pm

Another possible solution would be to look for better ways to represent .01 and .05. Rather than taking away people’s ability to charge and pay in increment less than 10 cents, let’s use a cheaper material or minting process.

Aspiring Millionaire March 16, 2011 at 9:55 pm

We got rid of 1cents and 2cents years ago here in Australia. Things are still priced as $1.98 for example. If you are paying cash it is $2, if you are paying with card it is $1.98. If it is $1.97 is it rounded down though, so essentially $1.95, so it goes both ways.

Overall, it is much better not having those piddly little coins. Yes, many did not want it to happen, but it has been done for so long now its not even noticed.

Pennies drove me insane when I was in the States (every other aspect of the States I LOVE, just ask my hubby, lol). If something costs more to produce that it is worth, why keep producing it?

Australia recalled all the coins and it is honestly much better.

But you guys are heaps bigger than us, so probably harder to implement.

So, that’s a really long winded way of saying I agree with you!

Anonymous March 19, 2011 at 6:16 pm

I think in this case there has to be a standard when it comes to rounding. By law they would be required to round to the nearest $0.05, and therefore you wouldn’t have a rise in prices at that level.

I think the same adjustments would be made at each level. No employer would assign someone an hourly rate where the cents weren’t a multiple of 5, and the same goes for salaried employees. Whenever other instances occur (such as paying overtime at “time and a half”), they would have to make the same adjustments as the seller above – that would have to be agreed upon beforehand.

It wouldn’t be easy at first as all of these odd scenarios would play out, but I’m sure we can work through that.

Anonymous March 19, 2011 at 6:18 pm

I really like the way Australia handled this! It may be a little harder here because of the size of the economy, but I still think it can happen.

Thanks for commenting and giving a real world example!

Aspiring Millionaire March 19, 2011 at 9:40 pm

What we have here in Aus is you can still charge in 1 and 2 cent increments. Most people paying by card will still pay whatever the amount comes to but as for anything not ending in 5 or 10 it goes like this

1 and 2 are rounded down to zero, 3 and 4 up to 5, 6 and 7 down to 5, 8 and 9 up to 10.

So it ends up pretty equal and since most people use card for most things, it rarely affects anyone, as a bank can still do the 1 and 2cents electronically in accounts. You are only getting rid of the actual coin.

hope that explains it a little better. :)

Perry April 19, 2011 at 2:36 am

I think you miss the point. If it is one hour at $10.17 then sure, but ten hours of work equals $101.70 so whats the problem? Nine hours would be $91.53, which if paid by direct deposit to their bank account is $91.53, if paid in cash (who is paid in cash nowadays?) then you make $0.02! If it were 8 hours work then the pay is $81.36 and you lose a penny. At 7 hours it is $71.19 so you would gain the penny. So are you saying employers would only allow employees to work the right amount of hours to save a penny each time? It all works out in the end.

Perry April 19, 2011 at 2:39 am

That doesn’t resolve the real issue which is that 1c is an anachronism nowadays. East Germany used to use aluminium for small coins and they felt like plastic tokens. Get rid of the things altogether and use the $130million a year to feed the poor, provide health care or whatever.

Nadine Clement June 19, 2011 at 8:16 pm
~KMGC~ March 28, 2012 at 9:57 am

I think we should go from cent based, 1¢ = $1/100, to disme based, 1đ = $1/10 (where the “đ”, “stroked ‘d’”, symbol = “& #273 ;” or “& #x111 ;”), get rid of the penny, nickel and quarter, create the US florin, 20¢ piece, and define and reemphasize the 50¢ piece as the US crown. So rather than the 1¢ penny, 5¢ nickel, 10¢ dime, 25¢ quarter and 50¢ half-dollar, there would be the 1đ dime, 2đ florin and 5đ crown (symbol and names just a suggestion).
Thus, prices could be defined in tenths, rather than hundreds, in most cases (financially sensitive transactions that require $.01, $.001 or even $.0001 resolution, can certainly continue to do so).
I mean, really, other than pricing gimmickry (“…now only $3.99!”), how often do you see something for 57¢ or 72¢?——it is most likely for 59¢ or 79¢, which, when it is all added up at the end of the year, could just as practically be priced at 6đ (6 dismes) and 8đ (8 dismes)!
What do you think?

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