The U.S. Treasury’s announcement to discontinue the penny marks a significant shift in American currency policy. While this may seem like a minor change, there are several areas of impact worth discussing.
The Economics of Penny Production
The decision to eliminate the penny is, at its core, an economic one. According to the U.S. Mint’s 2023 Annual Report, it costs 3.69 cents to produce and distribute each penny. With approximately 3.2 billion pennies minted in 2024, this equates to a loss of roughly $118 million in production costs.
The composition of the penny has evolved over time in an attempt to reduce these costs. Since 1982, pennies have been made of 97.5% zinc with a thin copper plating. Even with this cost-saving measure, the penny remains unprofitable to produce.
International Precedent
The United States would not be pioneering this change. Several countries have successfully eliminated low-denomination coins:
- Canada discontinued its penny in 2012
- Australia eliminated its one and two-cent coins in 1992
- New Zealand removed its one and two-cent coins in 1990
Studies from these countries provide valuable data on the transition’s impact on inflation, consumer behavior, and retail operations.
What This Means for Consumers
The most common concern about eliminating the penny involves pricing and rounding. Based on international models, here’s how you can expect pricing to work:
Credit cards, debit cards, checks, and electronic payments maintain exact pricing. No rounding occurs. For cash transactions, costs will be rounded to the nearest five cents.
- $0.01 and $0.02 round down to $0.00
- $0.03 and $0.04 round up to $0.05
- $0.06 and $0.07 round down to $0.05
- $0.08 and $0.09 round up to $0.10
According to a 2014 study by the Bank of Canada, the impact of rounding on consumers was negligible. Most businesses absorbed small rounding differences rather than adjusting their overall pricing strategies. Some transactions rounded up, others down, resulting in a wash. Similarly, the Bank of Canada’s study found no measurable inflationary impact from penny elimination.
For the average consumer, the transition will likely be seamless. During the transition period, pennies remain valid for all transactions and banks will continue to accept pennies for deposit or exchange.
Don’t Pinch Pennies When It Comes to Your Future
The penny may be going away, but the principle behind “a penny saved is a penny earned” continues to remain true. The key is making sure you’re not so focused on the pennies that you miss the dollars. Don’t let uncertainty about retirement keep you counting pennies when you should be building wealth.
Ready to get more than just our two cents on your retirement strategy? Let’s sit down and create a comprehensive plan that helps you maximize every dollar you’ve worked so hard to earn.
Give us a call at 952-460-3290.
