Friday Musings in Illumination — Money, Cash and Credit. Why is it so confusing?

We were never taught much about money.

It is just the truth.

My parents — like many — shun away from the seemingly evil topic.

Yet it is weird we have to navigate a world that is based on money.

How should we understand it?

Before we get into “money” as a topic, it is important to understand the 2 major forms of money that we cannot live without today.

They are cash and credit.

Every unit of cash spends just as well as credit. If we are to hop into any retail store to make a grocery purchase based on cash for today and credit (commonly used through credit cards) tomorrow, we might realise that the cashier tills doesn’t really bother with the difference between the 2.

We get to walk home with our groceries.

The key difference?

Cash is owned and Credit is owed.

Transactions with cash ends when the transaction is completed. If every transaction we made is based on cash, then the string of digits in our bank account and the amount of cash and coins we carry along with us determines the total number of goods and services we can purchase.

In short — We run out of luck when we run out of cash.

With credit, life becomes more interesting.

Credit is a form of borrowing. We are spending our future money. With the swat of our credit cards, purchases are made through debt. We owe the credit card companies money due to repay the next month, or the next few months.

Or we can rollover with exorbitant interest incurred if we choose to.

With cash — we are worried about reserves depletion.

With credit — we are worried about financing with future income streams.

Different instruments, different nature and therefore different concerns.

And that brings us to the topic of Money.

The biggest contention about money is whether it has intrinsic value and that means whether Money on its own has any value.

With Gold standard in place prior to 1971 — Money — specifically cash in circulation — had intrinsic value because it was backed by Gold.

Today, that is no longer the case.

Does that mean Money today no longer have any intrinsic value?

Perhaps we should think about it this way.

If we were to observe a cash pile in motion, we will realise that the cash pile is the same as they were days ago.

When they don’t move via materialising transactions, they remain to be pretty sheets of paper. They don’t enhance our Quality of Life.

The value of Money can only be realised when we move them and spend them for personal development, sustenance and other purposes.

We do have a spending economy.

Think about it.

When have a stagnated pile of cash actually done anything for us?

Beyond a comfort level of savings, we probably have to think harder to move our Money for our benefit.

Of course, all considerations have to be directed towards enhancing our personal development.

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About the Author:

As a Consultant by training, I believe in making the complex simple.

Because simplicity adds value.

Simplicity helps us gain clarity, and clarity helps us to grow.

And if we are not growing, then what’s the point of anything else?

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