The Psychology Behind Money Hoarding

The ‘Cash Paradox’ is the well known conundrum of cash transaction volumes falling while cash in circulation volumes increase. This gap can only be explained by cash hoarding. Much of this will be by commercial banks, hence the surge in cash returned to the European Central Bank once its interest rate turned from negative to positive.

No doubt some hoarded cash will be held by criminals, but it is suggested, for example, that up to 42% of the total cash supply in Japan may be held in non- transactional or hoarded form by ordinary people. What accounts for hoarding by ordinary people? A recent article touches on the psychology of money hoarding ¹.

Behavioural components of money hoarding

At one level, money hoarding that involves conservative saving, retirement accounts, and emergency funds is adaptive. An example of this is regularly depositing 10% of each pay cheque into a retirement savings and keeping funds for emergencies in readily available saving accounts.