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Is your money real?

Our abstract notion of cash may explain some bad national habits.

By Donna_Freedman Oct 1, 2009 9:46PM

This guest post comes from Abigail Perry at I Pick Up Pennies.

Unless you're living in a soundproofed house with no connection to any media, you've heard about the ongoing turmoil on Wall Street. 

Here's what I see as an underlying theme for recent personal and national financial crises: We've stopped seeing money as real. 

Of course there are plenty of other factors: greed, myopia, arrogance, risk-taking. But these problems have a common base: the fact that we deal with money in the abstract.

More technology has meant more convenience. But it also means that "money" stopped being automatically equated with "cash." It's theoretical. Bits of information. Numbers on a page.

Money isn't really money anymore.

Cash in hand, or in theory?

Most Americans get a slip of paper on payday. It tells them how much they made, how much they get to keep and whether it's already in their bank account.

We might withdraw some cash for day-to-day needs, but most of the money remains in our accounts. But how "real" are those accounts? For example:

  • Can you point to your account?

  • Is it in a physical location?

  • Is there a cash-filled cubbyhole with your name on it?

  • When you pay bills, do the bankers bundle up some $20 bills and run to the post office?

This may sound laughable. But if our money isn't really anywhere, how do we know that it exists?

Sure, those numbers in your bank account buy goods and services. But with checks, debit, credit and EFTs, we still aren't dealing with actual money. It's still shifting numbers from one spot to another.

In effect, we're allowing the banks to have our money and yet not have our money. They're managing our cash for us, on the condition that we never actually ask to see it.

Don't fence it in

This society really can't handle the limitations of physical money. Currently, our money exists everywhere.

  • It could be at any one of several bank branches.

  • It could be in an ATM (and not even necessarily your bank's ATM).

  • It's always in your debit card, just a PIN number away.

  • It could even be online, allowing us to pay bills without stamps.

Cash, on the other hand, is only ever in one place. And if that place isn't your pocket or wallet, you're pretty much out of luck.

So you can use cash only, and know that your money is real, or you can take the bank's word that it's available. (And, of course, take the government's word that you're safe in the hands of the FDIC.)

Show me the (real) money

In fact, some personal-finance bloggers trumpet a cash-only system as the answer. Yet many of them still throw around an awful lot of big numbers. Big, abstract numbers.

Net worth. What does that mean? Not that they could cash out tomorrow. Often "net worth" includes a house (minus any remaining mortgage) and retirement accounts they aren't supposed to access for years, maybe decades. But a net worth of $200,000-plus sure sounds nice, doesn't it?

Salary. It sounds impressive when someone says, "I make $80,000 a year." Is that really what you get? In a sense. But a truer picture is the amount you actually take home in pay.

Expenses. Shelter costs, for example: Can you picture taking currency to your landlord or your mortgage company? Utilities: Do you hand cash to the phone company and the gas works every month? Gasoline: If you had to pay cash at the pump every time, would you be carpooling more? Insurance: Do you take greenbacks to your agent or write a check?

Debt. Some bloggers are tens of thousands of dollars in debt. My husband, Tim, and I owe $12,000. I can't even begin to picture what that looks like. To me, $12,000 is pretty abstract. It's money we owe -- money that's already spent, which means not actual cash. Can you picture what your entire debt would look like as a stack of U.S. currency?

Out of sight, out of mind

I truly think this is a big reason for our growing carelessness with personal finance. How are you supposed to treat money as real when it's nowhere and everywhere? How do you take money seriously when it's all just a bunch of numbers?

We already know that some people lose track of credit card spending because it's plastic, rather than actual cash in (and then out of) hand. As the debt grows, those numbers on the statement become annoying or depressing or even scary. They're also easy to ignore, because they aren't real.

This cavalier attitude was bound to spread to mortgages, especially in areas where housing costs are high. Since prices were so ludicrous, people viewed them in the abstract. The bigger the number, the less real it seemed. The numbers were too big to comprehend, and some people didn't even try. They relied on banks to tell them what they qualified for, and that's what they spent.

We all know how a lot of those stories ended.

Funny money

What would our world be like if we didn't have credit to fall back on? Some people might be better off, some worse off. My husband would be much worse off, because we used plastic to finance his oral surgery and dentures.

Would people have a better sense of fiscal responsibility? Would they be less prone to thoughtless consumerism? Or would greed simply find another avenue?

Obviously we're not going to undo decades' worth of technology so that money can be a more solid concept in people's minds. But as long as we're able to transfer huge sums with the click of a mouse or a swirl of a pen, money isn't going to seem real. And if it isn't real, it's hard to take seriously -- or manage responsibly.

Other articles of interest at I Pick Up Pennies:

Published Oct. 1, 2008

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