Article

The Ludicrous Penny

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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.

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Comments (21 comments)

the chaplain / January 30th, 2008, 7:36 am / #1

Fun post. I must confess that we hoard all sorts of coins in our family - in a plastic 5-gallon jar. We take out the coins and roll them two or three times a year when we want to buy something special for the family.

I wouldn’t miss pennies if they went out of circulation. The reason they, and most other coins, go into the jar is because I hate carrying them around in my wallet!

ClintJCL / January 30th, 2008, 8:27 am / #2

Hahaha. Excellent posting.

I throw them away too, but I WANT people to see me doing it.

Cashless trasactions only is a terrible idea for privacy purposes. And we need cash to keep our thriving black markets alive, or we will lose our top cash crops in many states. :)

godma / January 30th, 2008, 11:01 am / #3

Great post. I really enjoyed it - and I entirely agree about the penny.

And I share Clint’s concern about all-electronic transactions, although it is possible to devise a system of all electronic currency, yet maintaining anonymity. The problem is getting people to trust the system. Actually, I get the feeling that people care less and less about privacy. It’s all going out the window as the price of collecting data and mining it continues to plummet.

BlackSun / January 30th, 2008, 1:39 pm / #4

The Chaplain,

“Silver” coins are actually worth hoarding. They can still really add up. Dimes, quarters, half dollars are worth exactly the same at $20.00 face value per pound. So a five gallon jug full would be a helluva lot of money!

ClintJCL,

There are many schemes for anonymous electronic payments. It’s actually easier to trace paper cash because of out-in-the-open unencrypted serial numbers.

But better than trying for perfect privacy or anonymity would be to decriminalize victimless crimes so law-abiding citizens had nothing to worry about.

Godma,

I quote Scott McNealy: “You have zero privacy. Now get over it.”

links for 2008-01-30 « Clint’s blog / January 30th, 2008, 3:23 pm / #5

[...] MONEY: The Ludicrous Penny - pennies suck, and this really captures how I feel about them! Another excellent article from my half-uncle’s blog — usually he writes about religion sucking, but in this case, it’s about pennies sucking, and not being worth having. And he’s right. (tags: bySeanP fromSeanP BlackSunJournal articles money pennies currency finance) [...]

John Morales / January 30th, 2008, 7:06 pm / #6

I remember when, here in Australia, the 1 and 2 cent coins (”copper”) were withdrawn from circulation. There was litttle to no controversy and no-one misses them.

So far as charities go, they generally refer to a “gold coin” (i.e. $1 or $2) donation - as in, “you can [something] for a gold coin donation”.

BlackSun / January 31st, 2008, 12:38 pm / #7

John, when did Australia drop the penny?

Carolyn / January 31st, 2008, 6:36 pm / #8

BlackSun,

It’s actually easier to trace paper cash because of out-in-the-open unencrypted serial numbers.

How is it actually easier to trace a serial number on a dollar bill to the person who has that dollar at that particular moment?

Unless you’re talking about wheresgeorge.com.

BlackSun / January 31st, 2008, 6:48 pm / #9

Carolyn,

In theory at least, a good system of anonymous e-cash would have encrypted serial numbers invisible both to the payer and receiver. If it were a non-governmental solution, then the government would have no way of looking at the serial number other than to computationally break the encryption. I’m not an expert, but I know various schemes have been proposed.

Right now, bills are traceable whenever they are spent. A properly designed e-cash system would be robust and anonymous. Otherwise it wouldn’t be e-cash, it would just be another form of check or bank debit.

The wikipedia article has some interesting info and links.

Obviously, any corrupt government is going to figure out a way to trace electronic money and abuse their authority. But since they can trace paper money with serial numbers now, and they can trace every check and credit card transaction, I don’t see how e-cash would be any worse.

ClintJCL / February 1st, 2008, 10:10 am / #10

You said it was easier to trace *paper* cash than *electronic* cash. Which I don’t believe for a second. If a friend hands me a $100 bill in my own home, NOBODY saw the serial number. There’s no way for anybody to know the money went to me. Even if there were RFID chips, I’m not reading those chips in my own home and giving out that information.

All electronic systems can be hacked. All. DRM for money? Hah.

BlackSun / February 1st, 2008, 10:49 am / #11

ClintJCL,

When I said they can trace paper money, I meant if they really want to, like with the Mafia or drug dealers. I understand the government sometimes used “marked” cash (meaning with known serial numbers) to find out who’s involved in a particular scheme.

Of course no one can trace your $100 bill. It’s hard to see why anyone would want to. They’re concerned with bigger fish.

The whole point of e-cash is that it’s anonymous for both the payer and receiver. If a digital file is sitting in a memory chip or on a hard drive somewhere, and you have it in your possession, how is that any different from $100 bill? It’s not like RFID. When you transfer that file to someone else, the only way anyone could tell it came from you was by the serial number, which would be encrypted.

In any event, I was talking about replacing small change with micropayments. I have nothing against paper $100 bills. I do think eventually cash will go away, but not until the privacy and anonymity issues are worked out.

Mike Adama / February 1st, 2008, 12:38 pm / #12

*Grin* I remember collecting 1 cent pieces and 5 cent pieces (Dutch money). When we had a jar of them we could carry it to the bank where it would be poored out into a machine that did the counting and created paper rolls for shopkeepers on the fly.
But one day my father had the creative idea that we should keep some coins as a souvenir “for later”. So he bought a package of synthetic resin and hardener and spread the coins on a table that he had furnished with some kind of border. After that he poored the resin mix on the coins and several hours later we had our own “table for the rich” :-)

Liquid Egg Product / February 1st, 2008, 7:10 pm / #13

Don’t banks have to keep records of who paid electronically? (Unless you don’t want a way to dispute suspicious charges.) All the government has to do is say, “Lookee here, we’re interested in Liquid Egg’s transactions last month, hand them over chop chop or we have the power to make your life somewhat unpleasant.”

Jeff / February 3rd, 2008, 5:19 am / #14

I drove my old car around for years with approximately 13 pennies glued together by sugar at the bottom of my cup holder. A little spill can last a long time…

Once, the uneven surface, combined with an absurdly large fast-food Coke, allowed my Coke to dump all over my dashboard during a hard stop.

God damn fucking pennies, god damn it. I eventually committed myself to the local loony bin. $1,000/day because of god damn fucking pennies. God damn it. Fucking pennies.

John Morales / February 5th, 2008, 3:26 pm / #15

#7: The Australian 1 and 2 cent coins were discontinued in 1991 and withdrawn from circulation.

lisa danage / February 11th, 2009, 5:07 pm / #16

yeah but i think we should keep the pennies because say for EX you payed a store 2.04 and you payed with a nickle then how would they pay you 1 cent back ????????????????
yeah thats whatb i thought !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
tell me how!

Amaterasu / February 14th, 2009, 1:39 pm / #17

If you've ever handled a one or two cent piece, the government has your DNA.

izlude / February 9th, 2010, 6:59 pm / #18

i toss mine in the garbage… or i let my nephew play with my blow torch to melt the pennies :P

guest / July 6th, 2010, 6:54 pm / #19

Hah, I collect 1982 and pre-1982 pennies. The rest go in a seperate canister.

All I need now are penny roll papers to roll those damn zinc pennies so I can haul them off to the bank.

The pre-'82s are gonna eventually get the jeweller's torch.

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