Monday, August 25, 2008

Small Amounts add up, but Pennies Don’t

A friend observed a contradiction between two of my articles. In one I point out that it’s important to pay attention to small amounts because they can add up. In another I argued that pennies are a waste of time. In fact, I routinely refuse pennies in change from cash transactions.

So, which is it? Do small amounts matter or don’t they? It depends on how small the amount is. If you spend $10 on fancy coffee and donuts, that is wasting the equivalent of a thousand pennies. The difference between a penny and a ten-dollar bill is the same as the difference between running to first base and running a marathon.

The average cash transaction will produce about two pennies in change. I average 2 or 3 cash transaction per week. So, I’m refusing about $3 per year in pennies. It would take me more than 3 years for this to add up to spending $10 on coffee and donuts once.

Thirty years worth of pennies invested at 8% interest with 3% inflation would have a present value of about $150. I’m willing to forego $150 once for the privilege of never having to handle pennies for the next 30 years.

So, small amounts matter, but pennies are too tiny to qualify as even a small amount. It's important to maintain a sense of scale when it comes to your finances. You'd need to save a thousand pennies to make up for wasting $10 on a snack, and you'd need to avoid a thousand snacks to make up for spending $10,000 too much on a car.


  1. Picking up a penny pays better then a 25.00/hr job. To reach down and pick up a penny takes approximatly 1.5 seconds. Following this logic through you can pick up .45c a minute or $27.00/hour. In that 1.5 second moment you are making more for your effort then many people make at their jobs.... and it is tax free.

  2. Anonymous: Based on your estimate of 1.5 seconds to pick up a penny, that's actually 40 cents per minute or $24/hour. But that doesn't include the time required to fish them out of your pocket to spend or roll them. It also doesn't include wear and tear on your pockets and the added time spent washing your hands after picking up dirty pennies. I'd rather look where I'm going than look down trying to make an extra 7 cents per day.

  3. Reminds me of a riddle:

    A rich uncle agrees to either give you $1 million, or to give you twice as many pennies every day for 30 days. The first day he gives a penny, second day two, third day four, then eight, etc.

    Which would you choose?

    The punchline:

    Anyway, it's not analogous to your post, it's just an interesting problem concerning pennies and compounding.

    Personally, I still find myself picking up nickels when I find them. It's probably not worth it, but it would be hard for me to walk by them.

    I recall at one time a claim Bill Gates would be wasting his time to bend over to pick up $10,000 based on his then income. He was making more than $10,000 per second. That had to be when MSFT was rising quickly.

  4. Anonymous,

    You are wrong. The penny that you picked up is taxable because you HAVE to report it as income.

    The penny picking job could be profitable only if they let you pick one penny every 1.5 seconds. The truth is that i would take you several minutes or even hours to find pennies if you are in the business of finding change. In addition to that you'd have to include the time it takes you to deposit the pennies.

    I would say if you see a penny, pick it up. But don't rely mainly on penny picking for income..:-)

  5. Gene: Nice compounding riddle. If we modify it so that your choice is either a million-dollar deposit in your bank account or an actual pile of $10 million in pennies, the choice isn't immediately obvious.

    I'm guessing that you could buy or rent machinery to roll the pennies or package them in some useful way for less than a million dollars, leaving $9 million. Then you'd have to find a bank willing to take the pennies for more than 11 cents on the dollar. A wild guess is that you would be left with between $4 and $8 million, but I'm really not sure.

    I still pick up dimes and nickels if I happen to notice them and they look clean, but I agree that it probably doesn't make sense.

    Based on a 2000-hour work year, $10,000 per second works out to $72 billion per year. Microsoft stock must have been rising very fast at that time.

  6. Ah... $72 billion a year? Okay, I must have been mistaken on the amount. Maybe he was making $1,000 per second for $7 billion that year. Last I heard, he had a wealth around $50 billion. I'd settle for $1000 per HOUR.

    Yes, I would hope your rich uncle in not only very generous, but not sadistic and would not pay the entire amount in pennies.

    Reminds me of those stories about people stealing large amounts of change, say a tractor trailer filled with nickels. Pretty hard to launder nickels. However, VLTs and casinos are apparently a good place to launder larger denominations of cash.

    You might find a site I visited a while back interesting. It provides a representation of what large amounts of pennies would look like:

    One billion pennies (our theoretical $10 million):

    Main page:

  7. Gene: A stack of pennies the size of 5 school buses would be quite impressive. It would be an interesting psychology experiment to leave such a pile of pennies out in the open and see whether people bother to take any. Even more interesting would be to see how many people come back for more after they have fought with their first pile of pennies.