Cash is still king when it comes to crises

Do you get the sense that blizzards, tornadoes, wildfires, hailstorms and other disasters are more common these days?

The data suggests our intuition is right while the cost of damage from disasters keeps going up, largely thanks to greater economic wealth and increasing development. Whether natural or human-made, catastrophes disrupt everyday life. Electric power might go down, cell towers might not work. There could be water could contamination and home evacuations.

One sensible personal finance recommendation is for households to create an everyday emergency kit in case of a natural or human-made disaster.

The Minnesota Department of Health has a useful checklist on its website for an emergency kit that includes enough essential supplies for households to be self-sufficient for 72 hours. Among the emergency kit essentials is cash — small sums of cash.

When calamity strikes, cash is useful. A recent European Central Bank (ECB) report emphasized the importance of cash during and in the immediate aftermath of a disaster by highlighting “the unique value of cash as a safe haven asset and essential contingency payment instrument for emergencies.”

That said, cash is something of the Rodney Dangerfield of finance: Cash gets no respect. In our digital age, we often treat cash as a relic. People routinely use credit cards and debit cards rather than cash for everyday transactions. Financiers acknowledge the security of cash but typically look at holding cash as a drag on returns.

Harvard University economist Kenneth Rogoff in his book “The Curse of Cash” made an impassioned case for getting rid of most paper money.

Cash is like society’s “spare tire” that backs up the digital payments system in a crisis, noted the scholars behind the report, “Keep calm and carry cash: Lessons on the unique role of physical currency across four crises.”

Cash isn’t a digital-age artifact. Cash is part of a financial safety net or household insurance policy against the risk of increasingly frequent catastrophes. (The ECB report focused on the role of cash during four recent European upheavals, but the insights apply to the U.S. too.)

The personal finance lesson of recent disasters is that it pays to create an emergency kit, including cash — just in case.