Today’s question comes from Dan from New Rochelle.
Q: Why do we have pennies? They seem useless; wouldn’t we be better off without them?
A: An interesting question and one I had to look up before I began answering because I really had no clue about the costs of pennies before this question was brought to my attention.
Some background info. Pennies have existed since the late 18th century. The Lincoln penny was first minted in 1909, and was the first U.S. coin to bear the words “In God We Trust”.
The U.S. penny now costs around 2.4 cents to make. This price is variable, and fluctuates with the price of labor and more importantly the price of metals going into the penny. Pennies are 97.5% zinc and 2.5% copper.
It may be surprising, even alarming, that pennies cost more than a penny to make. At 13 billion+ produced a year, the U.S. government spends over $300 million a year making pennies. Pennies constitute 2/3s of all coins minted by the U.S. every year.
The discrepancy between price and value is not as alarming as you may think. Pennies are used countless times during their lifespan. A single penny lasts on average 25 years, so think about how many pennies worth of transactions each penny is probably involved in.
Pennies are important for price freedom. Otherwise, all prices would have to be rounded to the nearest nickel (until people decided nickels were unnecessary too). This would only be a minor inconvenience, except perhaps for foreign importers/exporters, who often deal with countries where a pennies value is less negligible then it is here in the U.S.
Another option would be for everyone in the U.S. to have a change credit card. This would allow prices to remain how they are, and if ever there were pennies needed for exact change, either the customer or the vendor would make up the difference with their government change credit card. Of course, there are transaction, security, and account upkeep costs whenever credit is involved, which would likely wipe out most if not all of the savings from getting rid of pennies (300 million people, even if each card only cost each person a dollar a year, then the end result would be nothing saved). Odds are such a card would probably end up costing more than it saved.
Pennies are a part of U.S. history. Unless we decide to get rid of them completely, there is really no cost effective alternative to no longer minting pennies. Another suggestion would be to make them out of cheaper metals, but if the new pennies lasted significantly shorter, then this may not save money in the long run either. My guess would be that pennies continue to be part of U.S. currency for the foreseeable future, if for no other reason than people are comfortable with the status-quo and do not want to get rid of an American tradition as old as the country itself.