When you have questions like this, the answer is almost always money.
For this particular question, it is money - the cost of the LEDs (which is of course minimal, but multiplied by millions of phones), but also manufacturing (need to have a hole in the case to let the LED shine though which can let water ingress into phone). To make those holes water tight would add more cost so instead they decided to use the screen itself as the notification method. I think Motorola's implementation of this was the best - they had their always on display to show notifications and a single tap would let you see what the message was even if the phone was locked.
While I agree with you that its about money, I don't think its necessarily the cost of the hardware, I think it's more to do with selling data. If I can quickly glance at my phone and see there's no flashing led and thus no notifications I'm not even going to bother to reach for my phone. With no led notification, most cases I'm going to reach for my phone, pick it up and tap the screen or whatever to see if there's a notification, now that I have my phone in my hand, notification or not, I might as well open it up and do a little doom scrolling on some app or play a quick game of something or other.