It’s Time To Retire The Ludicrous Penny

With all due respect to Abe Lincoln…

Stupid Thing: The Penny
Why it’s stupid: Money that’s not. Costs 1.2 cents to mint. Need handfuls to buy a cup of coffee.
Bad rationale: Sentimentality, Hoarding
Short-term solution: Round prices to nearest nickel or dime
Long-term solution: All-electronic cashless transactions

“A penny for your thoughts…”

Are you a penny hoarder or a penny tosser? Do you leave them in the tray at 7-11? Or do you round down and take other people’s pennies to make up the difference? What does that say about you as a person? Frugal, generous, sacrilegious, prudent, stingy, profligate–or none of the above?

I’m tempted to start out this first article of BSJ’s Stupid Things section with a stupid cliche about “not giving one red cent.” But let’s begin this semi-seriously by answering a question: Why focus on such stupid things at all? Because the path to a better world involves eliminating stupidity, which involves a healthy amount of analysis and education. But let’s be honest, disdain and mockery can be a lot more fun, especially when you’re right. I mean, what other reaction would be appropriate when confronted with, well, stupidity? Besides, it feels damn good to get all those other people’s stupidity off your chest, right? So long as you don’t forget that we’re all part of the problem. Sentimentality and illogic don’t come from nowhere. We can all be stupid about things at times. The trick is figuring out when.

Stupidity is largely about waste. Opportunity cost. Not valuing your own time. Worrying about the wrong things can make you miss the right ones. You could save all your pennies for a year and yet waste a greater amount of money each week with inefficient appliances in your home. Or dripping faucets, or bad weatherstripping. Or a wasteful automobile. Or failing to shop around for a better insurance policy for said automobile.

Penny wise and pound foolish, as they say.

I used to collect pennies. When I was a kid, I had the biggest penny jar around. It was a Sparkletts glass 5-gallon water jug. Whenever I would get a few extra bucks, I would walk or ride my bike to the bank and exchange them for rolls of pennies. After about 3 years, the bottom of the jug was filled about 4 inches thick. Then it came time to move. It weighed more than 100 pounds and wouldn’t budge. I had to empty the pennies to avoid breaking it. Though I had over $150 worth, I found out that not only was it a hassle to get the pennies out, even in smaller containers they were too heavy to carry on my bike. (From what I remember I ruined several pillowcases). When I finally got a ride, the bank was not at all amused. They informed me the pennies had to be counted and rolled up before they would accept them.

I rolled up the pennies which took days, having to also find another ride back to the bank. I took the money and bought a nice set of used Advent cabinet speakers. To its credit, the penny jar had kept me from spending the money and I had something nice to show for it. But I also learned from the bank that I could have just opened a savings account. Then I could have had my speakers and a lot of extra time and energy on my hands. And I would have made about an extra 10 bucks. And my parents would have had their clean pillowcases and Sparkletts bottle deposit.

That was 1976. Today, 100 pounds of pennies might still buy a kid a nice pair of speakers, but only because of the drastic drop in the price of electronic goods fueled by Moore’s law. To buy the CPI equivalent of what $150 bought in 1976 today, you’d need about 362 pounds of pennies which would be worth about $543.00. Which would break the glass jar or send it crashing through the floor or both.

My story’s a roundabout way of saying something very simple: Pennies are worthless. Really worthless. To buy a cup of Starbucks coffee, you’d need to fill the cup with pennies. To buy a pack of gum, you’d need a couple of large handfuls. And forget a pack of smokes–you’d need nearly 3 pounds! You can’t use them to do your laundry. They’re an insult to leave as a tip in a restaurant. You can’t even buy a piece of Jolly Rancher hard candy for a penny anymore. So most people simply collect them in their pockets and throw them in a drawer when they get home. They are therefore entirely useless as a currency. They end up being almost exclusively hoarded. And this is a needless expense to taxpayers.

Edmond Knowles never learned the lesson I did with my Sparkletts bottle. In 2005, he cashed in over $13,000 in pennies he’d been saving for 38 years–a world record stash.

He hoarded pennies for nearly four decades as a hobby. He ended up with more than 1.3 million of them — 4.5 tons — in several drums in his garage. His bank refused to take them all at once; he finally found a coin-counting company, Coinstar Inc., that wanted the publicity.

In the biggest known penny cash-in, the company sent an armored truck last year, into which Knowles’s pennies were loaded. Knowles watched helplessly as the truck sank into the mud in his yard. A tow truck rescued it. His years of collecting brought him about $1 a day — $13,084.59 in all. Knowles, however, no longer saves pennies. “It’s too big a problem getting rid of them,” he said.

At least he stopped his hoarding habit, but how stupid can you get? If Knowles had made regular deposits in a savings account in the amount of $344/year for 38 years at just 5% interest–the same amount he collected in pennies–he would have had $38,000, not $13,000. Duh.

Well, you might say, people could just take their pennies and donate them to charity. And yes they could. They might even have enough pennies to vaccinate a few children or buy them a meal. But they would still have to carry the pennies around, take them to a bank or Coinstar machine, and then make their donation. Most people won’t bother. They’ll wait until they have to move or clean up, and then they’ll cash in several pounds of pennies they’ve been accumulating for a year. Then they’ll be so worn out from all the effort of counting and cashing 1,000 or so pennies, instead of making out a check to their favorite charity, they’ll take their ‘windfall’ and treat themselves to a movie–by themselves–without popcorn or soda.

If you don’t think it’s this low, let’s figure out how many pennies the average person accumulates in a year. I’ll be very liberal and look at a wost-case scenario: 3 all-cash transactions per day, seven days a week. Each transaction nets you either 1, 2, 3, or 4 pennies. Which averages out to 2.5. So that’s 7.5 cents a day, $0.53 per week, or $27.56 per year–worst case. In actuality, most people probably make far fewer purchases, since almost everything these days can be paid for with debit or credit card. So $10.00 per year is a pretty good figure and I don’t think the movie analogy is that far off.

Some paranoid types think that all this talk about eliminating America’s favorite hoarding coin is a Communist Chinese plot! There’s even a loony website of penny boosters (rumored to be funded by the zinc lobby) called Americans for Common Cents. Their arguments are specious and have nothing whatsoever to do with actual common sense.

The reason pennies are bad is their cost and inconvenience, which runs to hundreds of millions of taxpayer dollars per year. There’s just no way to spin this coin. Pennies cost the government 1.2 cents to manufacture, and nickels have likewise broken the 6-cent mark. No other product in the world could justify its manufacture at a 20% loss. And this doesn’t even count distribution costs. Yet the boosters bray on. Here’s the real analysis from the Washington Post:

If pennies were abolished, stores would have to round prices to the nearest nickel, and penny lovers suggest that consumers would suffer. I’m pleased to report that 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.

That doesn’t quite settle things, however. For although the average shopper would do fine, each individual shopper would run the risk of losing out from all this rounding. Hence the last-ditch question from determined penny partisans: Doesn’t this risk undermine the case for abolishing pennies?

[…]

If the shopper carries out 365 transactions per year, the standard deviation of all the possibilities is 27 cents per year. A benefit of $3.65 divided over a standard deviation of $0.27 gives you a Sharpe ratio of 13.5. In other words, abolishing the penny is 13 times better, on a reward-to-risk measure, than putting money in the S&P 500 over the past three years. It’s 45 times more attractive than the bond index over that period.

Rep. Jim Kolbe of Arizona proposed this in 1989. As shown, the economic impact would be negligible. Penny charities will scream. But they will adapt. They just might have to actually fund-raise or apply for grants instead of just waiting for their “pennies from heaven.” That can only be an improvement since the current situation amounts to a taxpayer subsidy, and provides absolutely no checks, balances or oversight.

Here’s a list of the various metals which have been used to keep this stupid coin in circulation over the years:

Zinc: Today’s copper coated zinc pennies weigh 2.5 grams, at a per pound price of just over $1.00, this coin costs just over 0.6 cents for materials alone.

Copper: This vital metal long ago became too expensive for the lowly penny. Weighing in at 3.2 grams, the pre-1982 copper penny would cost over 2 cents for the metal alone at today’s spot price of $3.30/pound.

Aluminum: Distributed to congressmen on a trial basis in 1974, Aluminum pennies were cheap enough, but they were too often mistaken for dimes and the idea was rejected and almost all copies destroyed.

Steel: Used briefly during WWII, the steel pennies rusted, were picked up by vending machine magnets, and were also mistaken for dimes.

With the exception of Kolbe, politicians seem to know better than to attack this sacred relic. A 2/3 majority of voters want the penny to stick around. It’s got “honest Abe” on it after all–it must be good. So the government just keeps minting more every year. But 58% of Americans just hoard them, while 2% admit throwing them away. Supposedly in 2009, we will get still another version of this overpriced commemorative coin.

Instead, as an homage to the lowly non-coin, and a consolation prize to the metals lobby, let’s take all the copper and zinc slated for say a month’s production of the relics and create a super-sized penny monument to be mounted on the grounds of the Lincoln Memorial. And from then on good riddance–the penny charities can send their lobbyists to fight over the government’s former penny-minting budget. Who knows, they might even come out ahead?

As for me, I’m among the 2% of Americans who will admit to throwing the coins away (I suspect the true number is far higher). I started this practice in about 1995 out of sheer annoyance at the absurdity of it all.

I began to nicely ask cashiers not to give pennies to me when they made change. I started to say quietly “no pennies, please.” I’m always polite and never insist. Usually if they don’t hear me or are in a hurry, I try to leave them on the counter, or in the penny tray, or the charity box. But if I can’t, they hit the trash can. Inexplicably, even though it’s my money I still always feel squeamish about it and never let people see me toss them. It just seems like bad form. But I have a hard and fast rule: They do not go in the pocket or in the car–ever. Pennies are an insult to the very idea of money. They retain the form and history of a dim memory of value, but now have none. They’re worse than worthless. They cost money to manufacture and money to get rid of. They’re money that’s not. So I happily pay $10/year for the personal privilege of not having them rattling around. Often I crumple them up in the receipt, or put them in the empty grocery or fast-food bag. No one is going to force me to carry worthless hunks of metal–even if they do have a picture of a really good president on them.

Writing this article is the last of my precious time I’ll ever spend on this “less-than-two-bit” issue. Thing is, I’ve been planning to write it for a couple of years and I’m still dumbfounded after re-checking the facts: In the face of airtight financial analysis, we somehow can’t bring ourselves to ditch a costly anachronism. C’est la vie. Now I can let it go and hope Americans eventually come uncommonly to their centses. Until they’re gone, penny-trashing will always be my protest vote. And my daily $.02 against stupidity and sentimentality.