attitudes toward money

Money is fungible. If you have x dollars in your checking account and y in stocks and z under your pillow, that’s how much money you have altogether. You may have money tied up in a car or a home as well (which are less liquid). These things all together determine your assets.

However, it is possible, and I think in some sense useful, to psychologically partition one’s thinking about money. The way I do this is to think of money solely in terms of my checking account. Basically, if there’s no money in my checking account, I assume I have none (even though I could easily sell my stocks to get more or take my money from savings). This is one sense irrational. As I said before, money is money….is money.

But what this bizarre behavior does for me is motivate me to work harder and spend less. If I think that the money in my savings account is somehow off limits, then there is a strong psychological barrier in place against spending more than my income. In this way, my bank account continually goes up, albeit slowly. Now of course, in an emergency, I would not hesitate to spend my savings (pretend that I need to a pay a bill or have my internet turned off. I would obviously transfer the needed to money to keep the internet, which I use all the time). The point is just that this would be a case in which need breaks through the psychological dam I’ve put in place.

The bigger point is that psychological attitudes toward money are just as important as the strict amount that exists on paper.


2 Responses to “attitudes toward money”

  1. March 9, 2010 at 1:04 am

    Even in practice, money (in the sense used here) is not entirely fungible: If we look at your X, y, z, there are minor difference between x and z—and major ones between y and x/z. Consider the extra effort needed to convert stocks into a form of money which can be used for purchases, that some of the value may disapper into broker’s fees upon an attempt to make that conversion, and the risk that the act of converting can alter the stock course. (This is not a problem for the average man, but consider if Gates were to dump all his Microsoft shares in one day…) Other complications can be found on closer inspection, say that stocks are not always legally sellable.

    • 2 questionbeggar
      March 10, 2010 at 5:42 am

      Correct, there are transaction costs and issues of time sensitivity (selling my stocks today might be bad if the market will go up tomorrow). Still I think the point stands that the relationship to our assets is an interesting one and might involve viewing our wealth as categorized in ways that are not reflected in the “objective” economy.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: