It seems like a no-brainer: If something costs more to make than it's worth, that product isn't likely to have much of a future. Well, try telling that to the penny.
Even though the lowly coin represents one-hundredth of a U.S. dollar, it costs about 1.7 cents to manufacture each one, according to a new report from the U.S. Mint. There's actually some good news hidden in the report -- the expense represents a decline from the 2.4 cents each penny cost to manufacture in 2011, thanks to lower metal prices.
It's not only the penny that's a money-loser. The Mint notes that nickels cost 8 cents to make, although that's down from 11 cents in 2011.
When added up, the losses aren't exactly chump change. While the report doesn't tally how much the U.S. is losing on pennies and nickels, it was estimated to stand at $105 million in 2013, according to The Washington Post. Given the decline in manufacturing costs, that total loss is likely to be lower in 2014.
Those losses may help explain why more Americans are questioning why the U.S. Mint continues to make pennies, and, to a lesser extent, nickels. A group called the Citizens to Retire the U.S. Penny wants the government to drop the coin, arguing that regardless of a person's political leanings, "all parties know that the country needs to save as much money as possible."
The group's plan? Halt production of the penny and round all cash transactions to the nearest nickel.
Opponents argue that rounding would lead to higher prices, the thought being that merchants would round up, causing store prices to edge up.
Such fears may be unfounded, as history shows. For instance, Canada discontinued its penny in February 2013. America's neighbor to the north made the decision to save an estimated $11 million annually, given it was facing costs of 1.6 cents to manufacture each coin.
So what happened? For one, the penny actually still exists, albeit only in non-cash transactions. That means that bank-card charges, for example, are still denominated in hundredths of the Canadian dollar, although retailers don't have to provide cash change in pennies. According to the Brookings Institution's Henry J. Aaron, there's "no evidence that dropping the penny has triggered Canadian inflation."
While the Mint could reconfigure the metal composition of coins to lower the manufacturing costs, the report noted that "any change to the weight, shape, and most importantly the electromagnetic signature" would require coin-dependent industries to overhaul their equipment. Think of every vending machine in the U.S. needing a retrofit to accept newly configured coins.
That would cost coin-dependent industries and other stakeholders as much as $6 billion, the report notes. On top of that, the study found that there "are no alternative metal compositions that reduce the manufacturing unit cost of the penny below its face value."
Some people may argue to keep the penny simply for nostalgia's sake. But how many passersby even stop to pick up a penny these days? It might have once been worthwhile, but if time is really money it might not be the best use of your time.
As XKCD's What If notes, "If your time is worth $10 an hour, a penny is worth 3.6 seconds. If spotting and picking up a penny takes you more than 3.6 seconds, it's a loss."