So – somebody asks you what money is? You obviously know what money is but how do you define it? What are the good and bad bits of having cash in the bank?
Market Commentary
American property prices start falling, UK prices to follow? Big ticket spending slows, inflation to follow over the coming months; markets happier with Federal Reserve likely to slow pace of monetary tightening.
Dosh, Dollar, Dough (to coin but a few phrases)
Barter was how people had to trade before money was invented and this is not an efficient way of going on, relying as it does on something called the ‘coincidence of wants’ - this occurs when two people have goods that they want to trade at different times, an example being a farmer whose produce is only available at harvest and a potter whose goods are available at any time - money allows the two parties to store their wealth and trade at any time.
The first known form of currency was the Mesopotamian shekel which emerged nearly 5,000 years ago.
Whilst it is generally it is good to have cash on deposit there are some downsides…
Money - holding cash - good bits
Convenience: currency is a lot easier to store and deal in than the alternative of barter is to manage.
Accountancy: it is easy to work out what your position is with money as opposed to more esoteric investments; as regards crypto however you need to re-check your position every 5 minutes or so…
Confidence: there is a positive psychological effect of having a sufficiency of money in the bank, and people should aim to keep around six months of expenditure on deposit - I am still trying to convince son number #1 of this.
Money - holding cash - bad bits
Default: this is where there is a run on the bank. We are really lucky in the UK in that the Bank of England underwrites our institutions; this is not the case in Europe where the ECB does not follow suit. Greek banks not so long ago ‘fined’ all those with more than €100,000 on deposit – they just took about 10% off people.
Taxation: never a good idea goes unpunished and taxation inevitably followed the invention of money. The expression ‘paying through the nose’ arose in the 9th Century, when the Danes (who had invaded Britain) slit the noses of those who did not pay their taxes. Cash on deposit is taxed under the heading of income tax – one of the less advantageous taxes.
Inflation: running currently at circa 11% - this means you are going backwards at quite a rate at present on deposit holdings. Remember that money is only worth what you can buy with it.
Summary
My definition of money is – a medium of exchange. Money is simply a store of value and it is only worth what you can buy with it. Whilst money can’t buy you love it can often provide a feeling of security; to be of use money needs the attributes of being durable, divisible, portable, uniform, limited in supply and acceptable.
p.s.
Mistakes, I’ve made a few - one of which is acting as lender of last resort to son number one. For son #1 (James) money is not so much the root of all evil but the source of all confusion. His system of accountancy is to tap the machine with his card and if it works, he is solvent, if not he calls me or Martyn. Some of you may wonder as to why I have not taught (him) fiscal responsibility, those of you with kids will appreciate the challenges of dealing with your own kids and be nodding your heads.
Sadly, Jimmy is not in the minority, a recent survey in the FT indicated that 40% of the UK population would struggle to meet an unexpected bill of £600 or more; I find this frightening.