Penny Pranks

Here are some links to the more funny penny pranks on Youtube. Enjoy!

Tollbooth Pennies
Paying Bill with Pennies Backfires
Paying Restaurant Bill with Pennies
Buying a Car with Pennies
Paying Ticket with Pennies
Paying with Pennies to Get Car Back
Paying Tax with Pennies

There are a bunch more videos of people paying with pennies, but these at least got a little chuckle out of me. And contrary to popular belief, no individual, business, or government agency is required to take pennies. Only the currency (bills) says they are "legal tender", but even though pennies are still legal tender, nobody has to take them as payment.  "Legal Tender" only means that it MAY be used to pay debts.  There are no federal or state laws or regulations, requiring any person or entity to accept any coin or currency as payment.  I could start a business and take payments in waffles if I wanted, but I might not get many customers.  Money is there for one purpose, and one purpose only: CONVENIENCE.  If it's not convenient for you, then you won't want to, and don't have to accept it.  If you don't believe me, maybe you'll believe Snopes. The funniest part about some of those videos is that the people actually accepted the pennies as payment!  They should have told them to come back with a more convenient form of payment.

Making Pennies Benefits the Economy!

This idea is expressed by penny lovers in various forms.  Whether it's creating jobs, facilitating purchases, or whatever, penny lovers feel that the world is better off with the penny.  As far as creating jobs, I think this is a valid point.  After all, over half the coins that the mint produces are pennies.  If pennies were no more, the mint would have to lay off half of their production workers, unless they start producing something else, like a $2 coin. Plus the zinc producers would have to find someone else to buy all their zinc. But if the US Mint is your biggest customer, then you will have to do some lay-offs and restructure your business.

Another concern arises if they switch the composite materials used to make the penny.  If they switch from zinc to steel or some other cheaper material, then all the zinc workers that produced the metal for the mint, have to go work for the steel producers.  Of course, the US has changed coin composition before, though not for more than 30 years.  The economy (jobs included) does adjust to these changes, but there are those individuals that are adversely affected. Of course, if they do switch the metal, then the pro-penny lobbyists will lose their biggest supporters, the zinc industry.  After all, they won't have a vested interest in making sure the penny stays anymore.

So, when changes are made, there is always a trade off.  Do the benefits of the change out-weigh the costs? Or are the costs way too high?  The penny lovers think the economic costs are way too high and the benefits too low, the penny haters think it's the other way around.

In all of this, make sure you don't see the US Mint as a "business".  They are a government agency set up to provide benefit to its citizens.  They should do that in the most efficient and cost-effective manner possible, but whether they are making or losing money is less relevant than whether the cost is worth the service they are providing.  Your local fire department doesn't "turn a profit" for your local government, but the service they provide is typically worth the cost.  They should provide what is needed and not any more (a town of 10,000 people doesn't need 600 new fire trucks, for example).  Similarly, the mint should be providing us the coins we need to transact business in the most efficient manner and no more.

No, We Won’t Need More Nickels

Just so you know, the claim by the penny lovers that we’ll need more nickels if the penny goes away is NOT true.  Let me give you a straight forward example here.  Let’s say you have 100 ten dollar bills.  Over the next 100 days you make 1 cash purchase each day and use the $10 bills to pay for them.  The total of each purchase (whether you buy one or many items, or if there is tax or not, is irrelevant) is somewhere between $9.01 and $10.00.  Now the purchase amounts are evenly distributed, so one purchase is $9.01, one is $9.02, one is $9.03, etc. all the way up to $10.00.  Are you with me so far? Good.  Now let’s assume you only use the $10 bills for purchasing, and get between $0.00 and $0.99 in change each time. How much change will you have at the end of the 100 days? Answer $49.50, and assuming they give you the largest denomination of coins possible (there’re a lot of assumptions here, but don’t worry, I’ll handle it), you’ll have 150 quarters ($37.50), 80 dimes ($8.00), 40 nickels ($2.00), and 200 pennies ($2.00).

So now, what if we rounded each of these transactions to the nearest nickel? What would happen?  In this example, you’ll still have $49.50 (since the amounts are evenly distributed, you get an equal number rounded up as you do down), but more importantly, how is that change distributed? Amazingly, you’ll still have 150 quarters, 80 dimes, and 40 nickels, but instead of having 200 pennies, you have 2 one dollar bills. The purchases for $9.01 and $9.02 would get rounded down to $9.00, so you’d get dollar bills for those two transactions. 

But what if the rounding doesn’t go in your favor? What if you get rounded up most or all of the time?  Then you could potentially lose some or all of that $2.00 in pennies/dollar bills, and instead have an extra couple nickels, dimes, or quarters.  Conversely, if the rounding does go in your favor, you’d still have those 2 one dollar bills, plus a couple extra nickels, dimes, or quarters.  Basically when it comes to rounding, think of it this way:  For every 100 pennies you would’ve gotten in change, instead you’ll have a $1 bill.  Or if you want to include an error for rounding:  For every 90-110 pennies you would’ve gotten in change, instead you’ll have a $1 bill.

This data shows another interesting fact.  If this is how change is given out (43% of coins given in change are pennies, 9% nickels, 17% dimes, and 32% quarters, error due to rounding), then it stands to reason that similar percentages should be used by the mint in producing the coins.  In reality, this is not the case.  Over the last 3 years it’s been 63% pennies, 12% nickels, 19% dimes, and 7% quarters (error due to rounding again) for coin production by the mint for the four most widely circulated coins.  The glaring discrepancies are the penny and the quarter.  I would guess that the reason they produce 20% more pennies than needed is because the coins are falling out of circulation too rapidly, meaning that people are not using them to purchase, they’re only getting them as change, and then taking them out of circulation by hoarding them or throwing them away.  On the flip side, the quarter (with 25% less) seems to be regularly circulated, and used both in purchasing and for change, and therefore the mint doesn’t need to make more, because they are not being removed from circulation as rapidly as the other coins.

I look at it this way.  Each and every coin that the mint produces, minus the coins that are returned to the mint and retired (this number is extremely small), and minus the extra coins needed each year because there are more businesses, people, transactions, etc. (this number is relatively small too), is money that we as consumers are hoarding or throwing away.  In other words, it is money that we are WASTING!

There are only two ways to stop the gross coin hemorrhage that is going on in the country.  Either we as consumers need to stop hoarding and start spending coins, or the government needs to stop making them!  If one of these two things happens, then the other will follow automatically. I really don’t see consumers changing to spend MORE coins, so it will have to be Congress that initiates the change (no pun intended).  Either way, the mint would go to making just a few million coins, instead of several billion!

But no matter how you look at it, we won't need more nickels or any other coin. The only way we would need more nickels, is if people start treating them like they do the pennies now, and remove them from circulation at a much faster rate.  Of course, then I'll have to change the name of my blog to US Nickel Info. 😛

Penny Videos

So, the penny debate is quite heated, even on Youtube.  Click and watch the links below, and comment on your favorite. I wish there were more good pro-penny videos, but they are pretty scarce.
Funny Goodbye to Canadian Penny
I Hate Pennies Video
Death to Pennies Video
Canada Gets Rid of Penny
Stan Lee Penny Rant

Why does Coinstar support keeping the penny?

This is something I've been trying to figure out for a while now. On the surface it seems logical. More coins equals more money right?  But wouldn't they spend the same amount of time sorting a penny as they would a quarter? Yet they make 25 times more money off of that quarter.  I would think their costs on processing the pennies would make it a counter-productive endeavor.  Without pennies, they could conceivably eliminate 60-75% of their variable costs, while only taking a 15-20% hit in revenue.  That's a 50% increase to their gross margin. Now that the company is firmly established and they are not expanding as rapidly as in the past, their fixed costs (like the cost of the actual coin-counting machines) should be more manageable.  Now I don't know the ins and outs of Coinstar's financials, but from what is posted on investing websites, their variable costs are about 70% of revenue. Therefore I would conclude that they would probably be better off financially if and when the penny's demise becomes a reality. What are your thoughts?
Coinstar's income on Yahoo! Finance (no longer available)
Coinstar website

Issues with the Anti-Penny arguments - Part 2

It's interesting that in one of the main arguments against the penny, the haters state that "we've done this before" or "other countries have done this before" all with little or no affect on transactions or the economy, etc.  I find this to be a bit of a stretch.  Converting registers, accounting systems and other purchase tracking software will be a major expense to businesses, and there will be a learning curve to get through, along with fighting off all the penny lovers, etc.  I happened to be in Australia in 1992 when they first changed over to a rounding system, and I can tell you that I heard a lot more complaints than praises.  Even in 1994 when I was there, I still heard a few derogatory comments about no 1 and 2 cent coins. While I was there, the exchange rate was about AUS$1.20 per US$1.00 if I remember correctly.  Now it's nearly a 1 to 1 exchange. And yes, I know exchange rates have little to do with purchasing power, or the strength of a currency within its own economy, but at least it gives us a starting point.  I'm sure that things are just fine there now, but at the time it was a big deal to a lot of Australians.  Now Canada is going through the same thing.  I'd like some feedback from Canadian business owners on transition costs and other headaches they're running into with this. I can't believe it's going off without a hitch.

Issues with the Anti-Penny arguments - Part 1

OK, let's switch gears to the penny haters.  I hate it when people convert time into a monetary value.  The penny haters say we're wasting 2.5 seconds every time pennies are used in a transaction, then if we do that twice a day, that's 5 seconds, and if the average wage is $17 an hour, 365 days a year...blah, blah, blah...all of a sudden we're losing billions of dollars every year, all because of pennies!  Hello people, I'm not getting paid while I'm shopping, so my time is free. But what about opportunity cost, you ask.  There is an opportunity cost for everything.  But the best example is with a business.  Let's say a company has $50,000 dollars to invest in improving their business.  What should they buy with it?  A new fancy widget to sell? Upgrade their retail facility? Pay their employees more? Open a new location? We could go on and on, but you get the point.  The company's options are limited by the finite resource of cash.  So they analyze each option and estimate how much more money each option will make them in the short- and long-term, etc. and then they go with the option that is best for the company (or makes them the most money).
Similarly, time is a finite resource for each of us.  But it does not have a monetary value for us.  If you want to make money, you'll find out how to make the most money with the time you have. But you'll find that there are certain times that are more productive for you and times that are less productive.  So you'll always be working during peak earning times, and not working as much during the low earning times. There will also be times where you can't make any money at all, no matter what you do, so you don't work at all during those times.
So as for wasting time in the checkout line with the rest of the penny users, hopefully you can gain it back on the drive home by catching all the green lights.  Seriously, 5 seconds is nothing, 10 seconds is nothing. Heck even 10 minutes is nothing.  Come on people, pennies don't waste our time.  And the only way they cost us money is because they're not cost effective for the government to produce.

Issues with the Pro-Penny arguments - Part 2

Warning: most of my comments will have a touch of sarcasm this time.

I like the claim that "the consumer" would be negatively impacted if we rounded to the nearest nickel.  Their backup for this argument; that 66% of Americans "feel" this way. You're kidding, right? Why don't you ask them if they "feel" they're getting shafted with the current rounding system too?  What's that?  66% of people feel they are negatively impacted by the current rounding system, too! Amazing.  Let's switch to minting the half penny again! Or better yet; let's start minting a mil coin too, worth a tenth of a penny! That way I won't get screwed when they round my $8.72 purchase plus tax of 8.25% from $9.4394 to $9.44.  I'm tired of losing .06 cents every time!  I'm not sure about your state, but the great state of Texas gives businesses a half percent discount on their sales tax when they file and pay on time.  This way the business don't get "negatively impacted" by rounding transactions to the nearest penny.  That's why businesses don't even worry about rounding.  I imagine if they had to round cash transactions to the nearest nickel, most business would continue exactly how they are now, except without pennies in their registers.

And the argument that the circulation of the penny helps keep inflation down and benefits the consumer price index?  If this were true, then the half cent and mil coins would be even more beneficial to keeping inflation down.  In reality, how the CPI is calculated would not change (pricing is collected from the sellers, not the buyers), nor would the rounding be included in the CPI calculation.

I'm the accounting controller at regional business.  I looked at our cash sales for the last few months. If we rounded all of our cash transactions to the nearest nickel: For $37,000 cash sales in April we would have made an extra 11 cents, for $38,000 in March we would've lost 7 cents, for $32,000 in February we would've made an extra 8 cents, and for $31,000 in January an extra 2 cents for the company.  That's a positive 14 cents for the company, negative 14 cents for our consumers.

The penny lovers have 1 point that I like, but they can't and don't back it up with any evidence.  They just say that it is "absurd" to say that not having pennies at the register will save time and increase productivity.  But I'll discuss this later when I lay into the penny haters.

Issues with the Pro-Penny arguments - Part 1

So I'll start by poking holes in the pro-penny arguments.  Don't worry penny lovers, I'll get to the anti-penny arguments soon enough.  After all, I believe everyone can make their own decision as long as they have the facts.

So first off we have their opening statement, "The penny continues to enjoy overwhelming support from a majority of Americans."  This assumption comes from their own "poll" in which 67% of those polled favored keeping the penny in circulation.  OK, let's assume you never worry or even hardly think about pennies. If someone asks you if you're in favor of keeping the penny in circulation (and they require a yes or no answer), what are you going to answer?  I would venture to say that the tendency is to stay with the status quo and so a majority of people will automatically say yes without any thought.  Since we use the penny now, that's what the majority will agree with.

I think a more telling argument would be to ask how they feel about the penny first, and throw out the answers to those that are indifferent.  You only want the data on those who have an opinion one way or the other, otherwise your data will be skewed toward the status quo.  Those that are indifferent will not care if we have a penny or not.  Of course, if you get an overwhelming majority of those that are indifferent, then your pro-penny argument will lose a lot of steam with that, too.

Another avenue would be to ask those you poll a bunch of similarly mundane-type questions and find the percentage that follow the status quo vs. those that go against it.  Then if your penny question is on the high end of the spectrum with followers, you'll have a good pro-penny argument.  If it's on the low end though, then you can conveniently ignore it, or just pick and choose the parts that help your argument.

I've got more, but I'll stop here for now.  Post a comment if you have any other ideas on the subject.

Penny Production

Here is the US Mint's preliminary production figures for all the US circulating coins. Pennies make up way more than half the coins minted so far.  These numbers should update regularly throughout the year.   US mint production

Here are some other years for your brain to absorb.  Look at all the pennies we have!
2013 - 7,070,000,000
2012 - 6,015,200,000
2011 - 4,938,540,000

With nearly 18 billion pennies minted in the last 3 years, and about 310 million Americans, that's 58 pennies per person.  They say pennies last for 30 years, so we probably have $5 to $6 in pennies stashed somewhere!  You could use that to buy lunch...if you can find someone to take them all!

The US Penny

The US penny has seen its share of lovers and haters.  In this blog I'll collect all the good, the bad, and the ugly about the US one cent coin. First up, I'll point you to the main pro-penny and the main anti-penny websites.  Then later on, I'll chime in on the pros and cons to their arguments.  I'll also be pointing you to interesting articles, videos, or anything else I can find online.  Eventually I'll collect info on what people actually do with their pennies and other change.
So for now here is the pro-penny website, Americans for Common Cents:
http://www.pennies.org/
And here is the anti-penny website, Citizens to Retire the Penny:
http://www.retirethepenny.org/