Saturday, March 24, 2012

The Penny: Necessary or Not?

With so much talk today about waste in government, it's relevant to look at the lowly penny, particularly with the number of politicians and conservative groups who believe that the penny has no relevance at all. They argue that millions of dollars could be saved by banishing the penny from our monetary system because it actually costs slightly more than a penny to produce a penny. What does this mean to you? Plenty. What do you do with your pennies? Every year, pennies are minted in the hundreds of billions, and what do these politicians and conservative groups say they do with their pennies? Most say that the little slip of copper and zinc is so useless that they throw them out. They get forgotten in car cup holders and unceremoniously dumped in wishing wells. It's little wonder that so many have to be minted every year, and you're the one who has to pay for it.

Banks order pennies from the federal mint based on the number that they have in stock to cover check cashing and other needs. The mint bases the number of pennies they mint on this demand. With less demand, there's less need to mint pennies, and thus, less expense. Over time, this translates to less need for the mint to collect tax dollars for creation of the penny, eventually saving you money. In an era when every little bit helps, this is a little bit that amounts to billions of dollars.

Finding their way to the garbage dump isn't the only way pennies fall out of circulation, though. Some people do throw them out, but others have more sinister things in mind. Prior to 1983, pennies had a much higher copper content that today's pennies do, which are primarily zinc with a copper/zinc coating to give them their distinctive coloration. These older pennies, which can still be found in circulation, are actually worth about twice their face value in copper scrap. This has led to the very criminal activity of collecting them, melting them, and selling them to scrap dealers.

Less criminal, but still responsible for removing billions of pre-1983 pennies from circulation for the same reason, is speculators who “hoard” collections of these copper pennies and trade them as commodities. Recently, one collector on the west coast was profiled who had hundreds of pounds of these copper cents stored in his basement in large barrels. For each of those pennies, as well as all of the melted pennies, another must be minted to take its place. If they remained in circulation, or if the new pennies at least, were left in circulation, rather than being stuffed away and forgotten, the mint would not have to produce nearly as many.

The best way to offset not only the damage to the economy and save some money yourself may just be to give your pennies to your toddler to put in their piggy bank. Not only will the pennies teach your child how to save, they'll also end up back in circulation as soon as your little one decides what kind of toy they want to buy with their savings. It's a win-win for everyone involved, and a better way to help the federal government save some coin, as well. Otherwise, the United States will likely soon be the next nation to do away with the penny all together, such as is the case with several European nations and Australia.

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