My 6yo Asked Me if Money Was Sacred; This Is How I Answered Him
It made me think of the origins of money, what gives money its value, and much more
“Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.” — Will Rogers
Money can be a huge source of stress for adults. It can also be the source of much happiness. But is it the money that causes us those emotions?
My kids are learning the importance of money. They understand money can be used to get the things they desire, like toys and sweets. But when one of them asked me if money was sacred, it got me thinking, hence this article.
I’m an agnostic, so you can understand why the question about the money being sacred would cause me some consternation. I don’t believe in a higher power, so how could money be sacred?
But, if we think about it from a different perspective, money is sacred. It is something that we all need to survive. It can also cause many problems if we don’t have enough.
Money is a tool with which we can buy the things we need to live. It’s the tool human beings developed to be able to exchange with each other. Its also the tool we use to ascribe value to people’s efforts and time.
That’s a different view of money from the “money is the root of all evil” type. I recently wrote an article titled “The Power of Belief: Do You Live in a World of Abundance or Scarcity?” in which I touch on how beliefs create our understanding of our world.
What we think about money influences how we handle it, whether we respect it, and whether we regard it highly or poorly. What do you have to say about individuals with money?
Money is a tool
A means of exchange. It’s something we humans created to make our lives easier. It’s not evil, and it’s not good. It’s just a tool. And like any tool, it can be used for good or bad depending on the person using it.
Some people believe money is the root of all evil. I disagree with that statement, but money can amplify the effects of evil just as it can boost good ones.
It all comes down to how we use it. Money is neutral. How we use it determines whether it’s used for good or bad.
Origins of money
The first known use of money was in ancient China around 3000 BC. At that time, people used cowry shells as a form of currency.
The origin of the word “money” is interesting. It comes from the Latin word “moneta,” meaning “mint.” This is where we get the term “coin” from. The word “coin” comes from the Latin word “cuneus,” which means “wedge.”
So, the word money means “something that is minted” or “a coin.”
Funny enough, the Chinese characters for money depict shells on a string. This is because shells were used as currency in China at one point in history.
The use of money has evolved over the years. Today, we use paper money and coins. And now, we also have digital currencies like Bitcoin.
The Gold Standard
The gold standard is when a country ties the value of its currency to gold. So, if you have a dollar, you can exchange it for a certain amount of gold.
Many people believe money is backed by gold. That’s no longer the case; there isn’t any country that uses the gold standard.
From 1871-to 1933, the United States used the gold standard. This meant that the value of the US dollar was linked to gold.
Under the gold standard, each dollar was backed by a certain amount of gold held in reserve. This ensured that the US dollar was valuable and stable.
The gold standard was abandoned during the Great Depression. The US government could no longer maintain the link between the dollar and gold. So, they stopped redeeming dollars for gold.
Today, money is not backed by anything tangible like gold. It’s what’s called “fiat money.” Fiat money is legal tender whose value is based on government decree or law. In other words, it’s worth what the government says it’s worth.
Fiat money is not backed by anything of value. It’s not backed by gold or any other commodity. And it’s not even supported by the full faith and credit of the government.
It’s worth what the government says it’s worth. And that value can fluctuate depending on a variety of factors.
The US dollar is an example of fiat money. So are the Euro, the Chinese Yuan, and the Mexican Peso.
“Wealth consists not in having great possessions, but in having few wants.” — Epictetus
What determines the value of fiat money?
The value of fiat money is determined by supply and demand. The more people want it, the higher the price goes. And vice versa.
A variety of factors influence supply and demand. These can include inflation, interest rates, and the country’s political stability.
The value of fiat money is also affected by “monetary policy.” This is the policy used by a central bank to control the supply and demand of money in the economy.
Monetary policy can be expansionary or contractionary. An expansionary policy increases the supply of money in the economy. Contractionary policy decreases the supply of money.
Expansionary monetary policy is usually used when an economy is in a recession. The goal is to stimulate economic growth by increasing the money supply.
Contractionary monetary policy is usually used when an economy is growing too fast. The goal is to slow down economic growth by decreasing the money supply.
What gives money its value?
Some people believe that money is valuable because it’s scarce. They think it will always have value because there’s a limited money supply.
Others believe that money is valuable because it’s a store of value. Money can be saved and used to purchase goods and services.
Still, others believe that money is valuable because it’s a unit of account. They think that money is a way to measure the value of goods and services.
We value our efforts if we trade them for money, is the worth we ascribe to them.
So, what gives money its value? It’s a combination of all these things. Money is valuable because it’s scarce, a store of value, a unit of account, and a medium of exchange.
The value of a currency can also change. When the value of a currency goes down, it’s called “devaluation.”
For example, the US dollar is worth $1.50 Canadian. If the US dollar devalues to $0.75 Canadian, the US dollar has lost half its value.
A country may decide to devalue its currency for several reasons. For example, a government may want to make its exports more competitive. Or, a country may be experiencing inflation and wants to devalue its currency to combat it.
What is inflation?
Inflation is when the prices of goods and services increase. It’s usually measured as the growth rate in the Consumer Price Index (CPI).
The CPI is a basket of common goods and services. The basket includes food, housing, clothing, transportation, and healthcare.
Many things can cause inflation. For example, it can be caused by increasing the money supply. It can also be caused by increased costs such as wage increases or raw materials costs.
When inflation goes up, the purchasing power of money goes down. This means that people can’t buy as much with their money.
For example, you have $100, and the CPI is 100. This means that you can buy $100 worth of goods and services.
Now, let’s say the CPI goes up to 110. Your $100 can now only buy $90.91 worth of goods and services. In other words, inflation has decreased the purchasing power of your money.
So, you see, money is a crucial concept in our world.
It’s vital we understand it and see it for what it is, a fantastic tool that can be used to build value or destroy it.
When my 6yo asked me if money was sacred, my first response was, “some people believe that to be true.”
But then I thought that the meaning of sacred doesn’t have to imply a religious context. It can simply mean something important or valuable.
And in that sense, money is sacred!
This article first appeared on Medium.com.