What Is The Purpose of Money?

Money began as a promise to pay while exchanging goods or services.  For example, if you did something for someone else (like help fix their roof) and they were supposed to do something for you in exchange (like make you three pairs of shoes), then they’d give money as a promise to pay.  Money created an agreed-upon way of exchanging goods and services.

Claudia Hammond – The Psychology of Money – Here is a more detailed, 23-minute video that explains the deeper psychological ties that impact our relationship with money.

A few quick take-aways about money from that video: 

1. It gives us a societal collective story that we can all share and buy into.
2. It acts as a future reward.
3. It’s a system that allows us to trade and trust others who we don’t know.

Purchases Are a Form of Investment

Our expenditures point to the things we value.  Our purchases are an investment, at least the larger ones are.  Obviously we don’t want to take this example too literally and begin questioning our $.25 gumball purchases. However money is a means of investing in the things we value: people, quality time, financial freedom, comfort, health, love, etc.  A common example is saving up money to go on a family vacation. Family vacations are a common way of investing in quality time with our family, making memories, or our sense of rest.

What if we don’t know what to invest in to have the most happiness or meaning though?   Below are a few quick places we can invest to help lead a more meaningful life:

• Ourselves – Kyle Cease (links to his book The Illusion of Money) recommends that even more so than stocks or Bonds, investing in ourselves via classes, workshops, health, or things like mental health enables us to tap into our highest creativity, sense of joy, or love.  
• Our relationships  – community or relationships are the proven source of the greatest return on happiness
• Our Passions– What things do we love doing?  Let’s go do some of them!
• Our Health and Wellness – Working out, drinking water, eating healthy, and counseling are all great ways to boost our Serotonin and leave us feeling a longer-term sense of joy.
• Our Sense of Happiness – How do we do that? Sit down and reflect over the last month or even year.  When was a time or activity in which we felt an abundance of happiness? Once a thing or two has come to mind, commit to putting that on the calendar this week.

The Context Matters

We use various shortcuts to make quick judgments about a product’s worth.  A common example is that a product is viewed as more valuable if we charge more for said product.  While one might think that giving something away for free might be a “kind” thing to do, it could also have the opposite effect, leading the recipient to believe that the product has little value.  When we give little for something, it is subconscious to assume that it will be of little value to you.

A dad observed his kids playing Monopoly over and over again, and playing in ways that seemed odd to him.  He thought, “What if they’re playing this way because the money isn’t real?” This concept is called Financial Abstraction, when there aren’t real consequences for spending the money.  So he decided to take out $10,000 from the bank, bring it home, and allow his kids to play Monopoly with it to observe what would happen.

• He noticed that 2 of the 3 kids played completely differently- more financially astute or managing the money as if it were real
• He decided to also explore the dangers of ‘playing with Monopoly money’ in real life (such as swiping our credit card, using gift cards, student debt, or other forms of removing one’s self from the actual cash).  Here are a couple highlights from Carroll’s talk:

We exchange small amounts of money fairly easy, thoughtlessly, and without much thought.   With larger amounts of money (or even purchases like a phone), we will commonly go on a 2 year-plan, owing part of our time/money to, let’s say Verizon.  We’ll also take out 5-year loans for a car without first taking the time to plan out what the next 5 years of our lives will look like.

Quick Question:
What one piece of advice do you wish you would have received when going from school into the real world?

Comparing Price (Value Shopping)

Would you like a Tall, Grande, or Vente? To those who frequent Starbucks, these choices probably sound familiar. So wait, a small is really called a “Tall” and I can get the largest size for only 99 cents more?  Those hip to marketing have discovered that comparison has just as much to do with our perception of value as the value itself.

Choices

Science Daily reveals that, “a company evaluated by consumers as better than its competitors in terms of corporate reputation commands around a 9% premium for its products, and an even higher premium when there are desirable extra features.”  People will pay more for brands they like or trust. Sales teaches that people make decisions with their emotions, and then later justify those decisions with logic.

Money offered/Not Desired (Volunteers)

The Purpose of Money to Us as Individuals

Money is a Mirror

Our spending shows us what we value.  But what if after looking at our bank statement or purchases we say, “Wait, there are so many random purchases on here.  Where did all of my money go?” What story could money be trying to tell us in this case?

One of the most likely stories is that we have yet to figure out what things are truly most important to us.  When this is the case, money can seem like it’s slipping through our fingertips. Let’s think of money like sand.  If we have a purpose for our money and are trying to build a sand castle, it’s easy to conserve each grain of sand and put it to use building this sandcastle.  However, if we haven’t yet figured out a purpose yet for this money, the individual grains of sand can slowly blow away, until we have little left.