How do we choose to pay using evolving retail payment technologies? Evidence from Japan

We examine the determinants of the choice of payment instruments for day-to-day transactions, and whether households that exclusively use cash (only cash users) hold more cash than households that use credit cards exclusively, cash and credit cards, or credit cards and other payment methods (card users) using Japanese household data. We obtain two main results. First, card users generally have higher disposable income, more financial assets, better financial knowledge, younger household heads, female household heads, higher educational attainment, and are not self-employed compared with only cash users. These findings suggest that an improvement in financial knowledge could increase the usage of credit cards in Japan. Second, holding other household characteristics constant, card users for day-to-day transaction values of more than 1000 yen have lower cash holdings than only cash users.