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What Does Money Mean To You?

Updated on April 3, 2014

The Meaning of Money

What does money mean to you and what does it mean to other people around the world? How is the value of money being changed by recent economic turmoil?

Warren Buffett has recently recommended the book "When Money Dies" by Adam Fergusson which examines the collapse of the Weimar Germany economy in the 1920s and suggested that the same could happen to western economies soon, if we are not careful. Money-printing (or Quantitative Easing) to boost the economy can cause devaluation of the currency and rampant inflation. The money can end up in the hands of the few and destroy the wealth of the masses.

I spend several hours a day trying to make money, but what is it's real value. One dollar, pound or Euro means something very different to other people depending on their circumstances: possibly a snack, a down-payment on a cup of coffee or a whole day's work. But when Quantative Easing was used by governments around the world to try to increase the amount of money in circulation, I started to wonder about whether the value of money was being damaged or even destroyed. In addition to this deliberate attempt to devalue our currencies and effectively reduce the enormous debts run up over the last few years, other methods of payment are also becoming popular, such as vouchers and points earned on the internet and even some towns in England have created their own local currency.

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

What is Money?

What is Money?

There has been a lot of speculation recently about the possible demise of the Euro as individual members of the European Union start to get deeper into debt and the stronger countries such as Germany have to bail them out. It could happen, but it could happen to the dollar and the pound too if current policies of continue. None of these currencies are backed by hard assets, just effectively a piece of paper representing an undefined fraction of the economy of the country or countries that use it.

If you look at a twenty pound note, it says in small letters "I promise to pay the bearer on demand the sum of twenty pounds" so if I go to the Bank of England and ask for £20 they will have to pay me the money in exchange for the promissory note, but what will they give me? four £5 notes, twenty £1 coins or twenty gold sovereigns? I hope it is the latter, but a gold sovereign is now worth in excess of £200 and yet has a face value of £1 so money has been devalued. A gold sovereign would now buy approximately the same as it always has, in terms of food, services, property etc, but fiat money (Latin for "Let it Be" i.e. paper money or promissory notes) have devalued every year. But why is gold real money? It is shiny and rare, but has no other use.

So What Does Money Mean to You?

salary distribution in the UK
salary distribution in the UK

Many of the middle classes in England define themselves by their salary (and the value of their houses and cars), the rich by their total net worth, but it is the people paid by the hour who probably know the true value of money the best: e.g. someone on minimum-wage knows it takes nearly an hour of their life to earn £5, whereas a salaried worker may just think it is a small fraction of their annual salary and therefore not worth worrying about (even if it really equates to a significant fraction of an hour's labour). If however we think of the billions of poor people around the world who make many of the inexpensive goods we buy and throw away, £5 could be a whole week's hard graft (see table above)

To earn £100,000 you need to work hard and/or be very good at what you do (assuming you are not working for an investment bank in London... see below) and you will also pay a lot of tax, possibly travel a lot and your hourly rate may not actually be that great. Putting in more hours will also probably not gain you much extra money. £100,000 puts you in the top 2% of the population. In most of England this would involve being a doctor, solicitor, a highly skilled senior engineer etc. but in The City of London you could earn this much by being a relatively unskilled back-office administrative worker in an investment bank, with no useful qualifications or knowledge of the banking industry (and probably still complain continuously about being poorly paid compared to their coworkers). This is a result of the banks being bailed out with tax-payers money: While the majority of the population gets poorer and more heavily taxed, a couple of hundred thousand people get a huge windfall. Effectively the value of money for these few lucky people has shrunk because when the companies they worked for failed, instead of losing their jobs and income they were given huge bonuses and enormous pay-rises. The result was while the rest of the population suffered the bankers went out buying Ferraris and ridiculously over-priced handbags. House-prices have also gone up a lot in certain areas in London because effectively money is worth less to those people who live there.

When situations like this arise money is devalued. The people who cause the economic problems actually benefit from them, impoverishing the rest of the population who are mostly innocent of the mistakes that caused the crisis. The masses, who represent the real economy have less to spend, but the few people who, if they knew what was going on should be in gaol or at least out of work and if they didn't, certainly didn't deserve the huge amounts of money paid to them, are awarded with huge sums of money to prevent their "skills" moving abroad. Their skills are not worth significantly more today than they were a couple of years ago (in fact arguably significantly less now their incompetence has been revealed) so money has been devalued and the situation is worse for the rest of the population who also have less money than before.

The table above shows the wage distribution in the UK (approximately) and compares with a low-paid worker in the third-world. This highlights not only how comparatively well-off we are in the west, but also how we may be not be quite as well off as we think we are.

Difference in Money Values Around The World

As pointed out above, the value of money varies depending on where you are in the world, but in much of the third world the majority are low-paid and the rich are very rich, with a very small middle class. There are often multiple economies running in each country with the majority excluded by class. The UK and many other developed countries are becoming divided in the same way.

While travelling in Egypt and other parts of Africa, India and South America I noticed how the tourist industry expected western style tips and yet we were surrounded by poverty. In Egypt a bus driver requested a tip of about £2 per person for a 10 minute shuttle trip from our cruise boat to a temple, with a group of about 30 people, making him twice the national average monthly wage (on top of his salary I assume) for almost no work at all.

In Cuba there are even three difference currencies in use: a Peso for tourists, one for locals and the dollar (unofficial) The dollar is of course the world's preferred safe-haven currency at the moment and allows comparisons to be made, but it's value is still very different in the hands of the world poor versus those on Wall Street.

In India a few years ago, a degree and several years training could get you a good job, or you could work in a call-centre for an international country and earn a lot more.

The Real Value of Money

The real value of money is determined by what you can do with it. In some parts of London property prices are so distorted by the City i.e. Investment Banking money, that a two-bedroomed flat may cost £3 Million which, when compared with the average property in the UK of about £150,000 is ridiculous. Ferraris, Astons and Jaguars are parked out on the street because a garage costs £250,000 or more (i.e. more than the cars) and even a parking space could be unaffordable. As the pound dropped against the dollar and the Euro prime London property was purchased by foreigners at what appeared to be bargain prices (for them) pricing local people out of the prime London house market.

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    • Grangermdk profile image

      Grangermdk 4 years ago

      Thank you for sharing. This is what should be taught in schools.

    • atyqinc profile image

      atyqinc 5 years ago

      This is one of the best book I've ever read.

    • WriterJanis2 profile image

      WriterJanis2 5 years ago

      As they say, the rich get richer. Sigh............

    • WriterJanis2 profile image

      WriterJanis2 5 years ago

      As they say, the rich get richer. Sigh............

    • profile image

      cr00059n 5 years ago

      Hopefully, many people will come to learn the value of money. Thanks for the imporant feed.

    • profile image

      HankScottAuthor 6 years ago

      Fiat money values differ within an economy, depending on who gets to spend them first.

    • MargoPArrowsmith profile image

      MargoPArrowsmith 7 years ago

      Dave Ramsey, Get-Out-Of-Debt Guru also says that 90% of money decisions are psychological

    • Andy-Po profile image
      Author

      Andy 7 years ago from London, England

      @MargoPArrowsmith: I think it was Warren Buffet who said something like "gold is an archaic relic" it pays no dividend and costs money to store it or insure it. Perhaps I shouldn't have said "Invest in Gold" when I really meant it is an insurance policy against the collapse of "fiat" (i.e. paper) money. Gold generally has a low correlation with most other asset classes, so for mathematical reasons, holding a small proportion of your portfolio in gold (or other precious metals) can reduce the volatility of the whole portfolio, but the total exposure should be small e.g. 5%, (unless you are a speculator) I bought gold at less than $800 per ounce purely as insurance, because I expected the banks to run into trouble and I'm glad I did. Maybe not an investment, but excellent an insurance policy as it turned out. I shall probably hang onto my gold coins.

    • MargoPArrowsmith profile image

      MargoPArrowsmith 7 years ago

      You are correct that the people who cause the mess are benefiting from it, but I wouldn't buy gold for the same reason. Even Glen Beck, in advertising for his gold coins says that it isn't a good investment, just something to have for future generations. The markup for common folks is astronomical.

      But, yes, money means different things to different people.

    • Andy-Po profile image
      Author

      Andy 7 years ago from London, England

      @anonymous: Very true. I have seen similar statistics, both in local and a global terms. The distribution of wealth is so unfair. Many millions or even billions are living in poverty elsewhere in the world. Even in our own (rich) countries there is a huge disparity between the rich and poor, with many living in real poverty.

    • SandyMertens profile image

      Sandy Mertens 7 years ago from Frozen Tundra

      Nicely written. It doesn't make sense a lot of what the government does to stimulate our economy.

    • profile image

      anonymous 7 years ago

      I read on someone's lens recently, that most of the world riches are owned by 6% of the population. That's startling. The thing is they can't take it with them. It just mystifies me, because I would be doing all the good I could to help others instead of hording it.

      Very thought provoking lens Andy!

    • profile image

      anonymous 7 years ago

      Some scary topics you cover here, Andy. Nicely written in language everyone can understand. It has always made me nervous when I would hear that the US government would print a bunch of money to stimulate the economy. My question was always, "what do they have to back that up?"

    • profile image

      anonymous 7 years ago

      Some scary topics you cover here, Andy. Nicely written in language everyone can understand. It has always made me nervous when I would hear that the US government would print a bunch of money to stimulate the economy. My question was always, "what do they have to back that up?"