The penny loafer originated when a shoemaker named John Bass created a type of loafer called a "Weejun" that had a split strap across the top of the shoe. People added embellishments into the opening of this strap for decorative purposes, the most common being a penny.
Adding a penny to loafers was such common practice that it eventually became the generic term for loafers. When penny loafers were first introduced in the 1930s, adding a penny also served a functional purpose in addition to decoration. At the time, before pay phones cost a quarter, pennies in shoes could be used for emergency calls home.