Power Up Wealth podcast – Episode 100 – Pull the Penny, Save the Dollar
Mikal Aune 0:00
I’m Mikal Aune, Executive Vice President of Smedley Financial. Today we will be talking with our President, James Derrick, about the demise of the penny and the hidden impact to your wallet.
Shane Thomas 0:15
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
Mikal Aune 0:31
James, thank you for joining me today.
James Derrick 0:33
Happy to be here.
Mikal Aune 0:34
James is the President of Smedley Financial Services and has been with our company for over 25 years. He holds a CFA designation and an MBA. Recently, you wrote an article about pulling the penny and defending the dollar. What do you have against pennies?
Mikal Aune 0:35
Well, Mikal, I don’t have anything against the pennies. I actually have a coin collection. I love pennies.
Mikal Aune 0:53
Okay.
James Derrick 0:53
They’re great.
Mikal Aune 0:54
Good. So you don’t think we should just get rid of pennies?
James Derrick 0:56
Well, they’re not really that useful, except for the collectors.
Mikal Aune 0:59
Okay so collectors should keep pennies because they could be worth something, but the general public, no, we should just get rid of pennies?
James Derrick 1:05
Well, I mean, you know, when you’re walking along the street, I mean, when was the last time you, like, reached down and picked one up? I mean, it’s been a while, right?
Mikal Aune 1:11
You have to think about it, like, is it really worth it to lean down and pick up that penny? Well, I could throw it in the, you know, the fountain over there, and get a wish. You know, that’s about all it seems worth for.
James Derrick 1:20
That is about all it’s worth. You know, in the article I wrote recently, I compared it to the half penny, to give us an idea of like, what is a penny really worth? I mean, a penny is a penny, but what can you buy with it? And you just can’t buy very much. And when you go back and look at what a half penny was worth before they got rid of it, and I don’t know if, if you knew this, but we used to have a half penny in the United States. Back in the 1800s George Washington started minting them, and they were around until about the time of the Civil War. At the time, it was a half a cent. Obviously, it’s a half a cent when they began, it was a half a cent 70 years later when they stopped making it. But what you could buy with it was the equivalent today of 16 cents. And they got rid of it because they thought 16 cents is not worth it. I mean, what that means to to us is that we are way overdue to get rid of our penny.
Mikal Aune 2:07
So the government is talking about getting rid of the penny.
James Derrick 2:10
Yeah, there’s no date announced, but sometime in early 2026 we will be removing the penny.
Mikal Aune 2:17
Why exactly, or how much does it cost, and why and why is the government stopping printing the penny?
James Derrick 2:22
Well, I should say it’ll probably still be accepted and because it’ll be in circulation, but they won’t be making more, and they’re getting rid of it, not only because it’s not worth much. You can’t buy anything with a penny anymore. I don’t even know if you can buy anything with a nickel, but.
Mikal Aune 2:38
A gumball. Maybe with a nickel, it used to be a penny for a gumball, but you can’t buy that.
James Derrick 2:39
I know I mean, it seems like anything less than a dime might not be worth it, but the government has a whole nother problem beyond that, and that is that they lose money every time they make a penny.
Mikal Aune 2:48
How much does it actually cost?
James Derrick 2:49
Penny is worth a penny, one cent, but it costs them approximately 3.7 cents to make it. So they’re losing 2.7 cents every time they make them, and they make a lot. I mean, we’re talking billions.
Mikal Aune 3:04
How much is the government going to save? Because we’ve worried about the deficit and everything else that’s going on, is the government saving money then? And how much?
James Derrick 3:11
Yeah, they’re going to save about $56 million.
Mikal Aune 3:15
Just by not printing pennies.
James Derrick 3:16
Just by not printing pennies. So.
Mikal Aune 3:19
Should say minting pennies.
James Derrick 3:21
I mean, it’s not enough money that it’s going to solve the budget deficit or or any of the other major debt problems that we have, but it is a surprising amount of money.
Mikal Aune 3:33
The more that we can save for the government, the better.
James Derrick 3:33
I mean, most people are not too worried about saving money for the government, but in the long run, it’s really going to matter.
Mikal Aune 3:34
So how’s that going to impact retailers and us, as we go to the store and you want to buy the Big Mac meal or whatever it is, that’s $9.99 Well, if you don’t have a penny, you can’t do 99 so what are retailers gonna do and how’s that gonna impact us?
James Derrick 3:53
You know, if they really want to entice us to spend, they’ll probably go from 9.99, to 9.95, and I think we’ll see some of that. However, knowing what I know about capitalism, I think most companies will be rounding most of their items up.
Mikal Aune 4:07
You think so? So they’re going to be 10 bucks and then with tax. But what if the tax doesn’t round out to be five cents?
James Derrick 4:13
Well, you know, they don’t worry about that. They didn’t before, and they won’t now. I think same thing. They just round it up.
Mikal Aune 4:20
So many things are electronic these days too. We use a credit card. So are they even going to round up? Are they just going to say, use your credit card and it’ll just do pennies anyway?
James Derrick 4:28
Yeah, I imagine that it’ll be up to the retailer. At first, I’m totally guessing here. At first, we will probably not see the rounding, but eventually, I think everyone’s going to coalesce around five cent denominations.
Mikal Aune 4:40
Yeah, and kind of rounding things up. Businesses would like to have more money coming in than less, so they’re not going to round down.
James Derrick 4:46
Yeah, it’s really hard to round down every single item. Imagine going to the grocery store, and if they decide to round down every single item, I mean, it’s just as unrealistic for them. And so they they may keep it the same for a while, because most people are paying electronically and because pennies are. Still around, but I think eventually we’re going to see everything start rounding up. By the way, the nickel is also worth a lot less than the 16 cents that the hay penny was worth. The nickel costs about 11 cents to make.
Mikal Aune 5:12
So why are we not doing away with the nickel too?
James Derrick 5:15
I think that the public would just be outraged. Just one thing at a time, Mikal.
Mikal Aune 5:21
Yeah, one thing at a time. Let’s just do the penny first, and then we’ll worry about the nickel later.
James Derrick 5:25
Right.
Mikal Aune 5:25
You also said that there is a hidden impact that is causing the penny to become irrelevant. You said that the dollar has dropped more in 2025 than in any year since 1973. What’s going on that’s causing that? And why is that concerning?
James Derrick 5:38
Yeah, so the value of the US currency, the dollar, is down. In the first six months of this year it was down 11%. It’s the biggest drop since 1973 so that’s a long time.
Mikal Aune 5:49
Yeah, because 10%, 11% doesn’t sound huge, but when you put it in that context, that’s the largest since 1973, that’s a big move.
James Derrick 5:58
It’s a big move. And before we talk about what it all means, I think it’s important to realize like nothing moves in a straight line, especially currencies, they they’re changing every second of every day, even while you’re sleeping, they’re moving around. I don’t think that the second half of 2025 is going to be as bad as the first half of 2025 for the US dollar. In fact, I’d be surprised if it’s a negative at all, and it has an impact on people’s wallets. And it’s not just rounding when you go to the grocery store, but it’s also like, if you’re looking at doing international travel, if the dollar goes down 11% let’s say, versus the euro, and you want to go to Paris or Rome, it’s going to cost you approximately 11% more. You know, every time you even if you’re pulling out your credit card, there’s a currency change taking place instantaneously when you’re over there, and so it’ll cost you a little bit more.
Mikal Aune 6:48
So what other things are challenging or costing more? So like international travel, is one thing that it’s going to cost you more at this point. What other things are going to cost you more?
James Derrick 6:58
Well, that’s probably the most direct. An indirect one is with imports. And this is particularly interesting in a year when we’re talking about tariff taxes. These taxes come in on imports, because if the dollar is worth less, then goods imported into the United States may actually cost us more.
Mikal Aune 7:16
So that’s an indirect inflation or impact to us.
James Derrick 7:19
It’s a potential inflation, and it’s one that I think that the administration back in Washington, DC is perfectly happy to allow, not that they have full control over this or anything, but I think they’re okay with that.
Mikal Aune 7:31
Why are they okay with it? Why are they okay that the dollar is going down.
James Derrick 7:35
Well, as a lot of people like to say, including the President, the strong dollar is not as good as it sounds, and so having people want to buy things made in the USA has its benefits. So if imported goods cost more, whether it’s because of the currency or because of tariffs or both, that has the potential to really help manufacturing here at home, it could help jobs here at home. It’s really tricky because there’s a lot of moving parts to this. I think it plays out over a very long period of time. So where your foreign travel as an example, instantaneously changes in cost, the cheaper manufacturing here in the United States, I think has to play out over a long period of time. It takes a long time to notice a difference.
Mikal Aune 8:18
And I could see behaviors changing over time too. Because if people are planning to go to Europe next year, just because it’s going to cost them 11% more, they probably already have things planned and they’re going to go through with it, but maybe the next year, and next year after that, they’re like, that’s becoming too expensive. I’m not going to think about it. And travel drops, but it takes time for it to happen.
James Derrick 8:38
Yeah. And things change, you know, like, if the price of one thing goes up, you know, like, let’s say that a trip to Europe, if that price goes up, overall, consumers have less money to spend on other things. So then those prices will come down to entice buyers. And so then you have, like, a natural equilibrium that just kind of works its way out. And this is one of the reasons why I think it’s difficult to predict inflation. One item goes up in value, and the other drops a little bit, and they kind of, well, I use the word equilibrium. I think that’s a good word for it. You reach a new equilibrium over time.
Mikal Aune 9:11
So with the dollar dropping now, are we going to reach a new equilibrium sometime soon? Or do you think it is going to take some time to play out?
James Derrick 9:18
Yes and yes. I would really like to see an equilibrium. I would like to see the dollar not drop another 11% in the next six months. I think it’s really good for just as a business. It’s really good just to see a stable currency. Now, when you’re making dollars and spending dollars, which most people listening to this podcast will be, you don’t have to worry too much about this, but it’s nice to have stability in the world.
Mikal Aune 9:44
What if you’re retired, you’re not making dollars anymore, you just have income coming in from Social Security and other sources. Are you impacted more by this than the general public?
James Derrick 9:54
No, I think that it still holds true. You’re getting your Social Security in dollars. If you have an IRA, you’re taking distributions or Roth IRA, and you’re taking distributions from there. That’s in dollars as well. And so I think that kind of the same thing plays out, where the currency doesn’t become as big of a deal. The thing that you would worry about there, though, that is also part of the equation with the penny and the nickel is inflation, and inflation is a very silent killer, as we’ve seen over the years. You often don’t think about it from day to day, but even my 14 year old daughter talks about it sometimes.
Mikal Aune 10:26
It’s kind of ironic, because for the last over a decade, I’ve been trying to convince people that inflation is a problem with their retirement plan. We need to work out, watch out for inflation much more than we need to watch out for a big downturn in the market. And people are like, yeah, yeah, inflation’s at 1% 2%. Well, now that inflation spiked up, and at one point is up over 9%, people like, oh, yeah, I can see how inflation is a killer and how it really hurts. And if you have a 14 year old talking about it, inflation’s hurting everybody.
James Derrick 10:52
Yeah, then you know, everybody’s aware. And incidentally, she is a little bit less worried about inflation, because dad takes care of that, and more interested in shrinkflation. If you’re familiar with that term, where you go and you open up a package and you know that bag of chips used to be like half full, and we would complain, and now it’s 75% empty. It’s just all air.
Mikal Aune 11:13
Just still costs the same amount.
James Derrick 11:14
But it costs the same amount. So she’s painfully aware of shrinkflation, too.
Mikal Aune 11:18
Interesting that it’s going around, though, that everybody knows about everybody’s been feeling inflation and the impact, and I guess that’s why the penny is going away, because it’s worth less now.
James Derrick 11:27
Less now, and it’ll keep going. I mean, like a certain amount of inflation is there by design. We are increasing the money supply every single year intentionally. Right now, the money supply is going up by about four and a half percent, and that sounds like a lot, believe it or not, when we’re talking about the money supply, that’s kind of low. Typically, it’s closer to 6% in the United States.
Mikal Aune 11:49
So what does it mean if the money supply is lower than its normal what is the impact to us? Does it really matter to the normal consumer, or is that just a high level thing that the government has to worry about?
James Derrick 11:59
Well now we’re going down a rabbit hole I wasn’t planning on. I’ll just say this about it Mikal, because it’s a great question. When the money supply is not growing adequately, you have the potential for less inflation. So we have two crosswinds going on right now, where we have tariffs, which push up inflation. I don’t care what anybody tells you, there’s the potential for a one time bump in prices because of it, but then we have the potential that the money supply isn’t growing fast enough, and that’ll actually bring down inflation. And so 12 months from now, it is possible that inflation will be lower, not higher.
Mikal Aune 12:38
So more like inflation is no longer the big or as big of a concern as it is right now?
James Derrick 12:43
Right. And if we do see that, and it’s an if, if we do see that, like, let’s say that inflation is currently approximately 3% I mean, there’s a lot of different measurements for it, but about 3% if we get it down to 2% that’s great news. I mean, hopefully it doesn’t come with other bad things that sometimes accompany lower inflation, but we would welcome 2% inflation.
Mikal Aune 12:44
And I think that’s why you’re saying getting rid of the penny makes sense. It saves us some money, but we need to worry about defending the dollar and making sure that the dollar is good and stable.
James Derrick 13:13
Yeah, I think an 11% drop in six months is good for now.
Mikal Aune 13:16
Yeah.
James Derrick 13:16
Incidentally, when you worry about inflation, because we don’t know what the future is really going to bring. We don’t know up down. One of the best things you can do is invest in assets that actually grow.
Mikal Aune 13:28
What would those be?
James Derrick 13:29
Well, I mean, principally, I would say the stock market. I mean, you’re investing in real companies that are making real products. They have revenue, hopefully they’ve got profits. When you buy the stock, you are an owner in those companies, and you’re participating in how well they do. Sometimes they pay dividends. So there’s some real benefits. So these are, these are assets that are actually working for you. You know, other things could be fixed income, like bonds, they’re not as good with high inflation, but if we think inflation is not going to be, too bad, it’s a good place to be. Real estate. We’re just talking about assets that actually have potential.
Mikal Aune 13:36
And real estate’s a good one. But right now, real estate is definitely in location by location, because there are some states that are still growing and other states that are shrinking as far as their real estate values. Over the long run, real estate is a good investment.
James Derrick 14:19
Yeah, I’d be really careful right now. The places that saw the hit first, like rolling over negative numbers, were those who had the biggest jump. So we’re talking parts of Texas, parts of Florida, but now we’re starting to see a real estate struggle in other places, like Southern California. I remember years ago attending a seminar where real estate expert showed how real estate prices changed following I-15, going from the big cities to smaller cities. So we’re he showed how, back in 2006 LA was hit, then Las Vegas, then St George, Utah, and then Salt Lake City, Utah. And I remember just being stunned at how it just kind of moved along the freeway. Like, why would it have to do that? But it did. I’m a little wary of it, you know, with interest rates where they’re at, and prices of real estate where they’re at.
Mikal Aune 15:11
So is there anything that you’d recommend to the general public for inflation and being able to insulate themselves or protect themselves so that they are good?
James Derrick 15:19
Like I said, be invested. Always be invested. Just stay invested. No matter what worries you have out there. It is worth having some of your money invested at all times, because you don’t know what the future is going to bring. But one thing that’s pretty constant. I know we say there are two certainties, death and taxes, but inflation is probably third.
Mikal Aune 15:38
A close third.
James Derrick 15:39
Yeah. So putting your assets to work for you is a good idea.
Mikal Aune 15:43
Yeah making sure that they’re growing and you’re not getting left behind because of inflation.
James Derrick 15:47
You take risks to do it. Anything could happen, but in the long run, there’s a lot of smart people out there working really hard to make sure that companies are growing and inflation sometimes it’s just not a major concern. So I think that we may have inflation in the future, just like we’ve had it in the past.
Mikal Aune 16:04
It’s going to keep on going, and more than just knocking off the penny, pretty soon, we’ll be knocking off the nickel, and then maybe even the dime.
James Derrick 16:11
Someday, I think so.
Mikal Aune 16:13
Well, thank you, James, it’s been a pleasure talking with you today.
James Derrick 16:16
Thank you.
Shane Thomas 16:22
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
