| by Glenn J. Downing, MBA, CFP® |
Money and Credit
My parents are products of the Great Depression. It was my mother who first taught me about money and budgeting – she managed the family purse strings. Dad was the breadwinner, and he brought home cash each month and turned it over to my mother to run the household.
The Envelope System
While I was in high school my mother sat me down with her checkbook and this folder that consisted of various envelopes, each with a label (food; clothing, etc.) and cash in them! This was mother’s system – Dad brought home cash, and she put it in the envelopes, and that’s what was there per category to use that month. There were no Excel spreadsheets then, nor budgeting apps. So if there was more month than money, and an envelope was empty, there were two choices: defer the spending until next month, or borrow from another category. I’m grateful for this training and I use a variation on the theme with many clients today.
There was no debt. A common attitude of my parents’ generation was that debt was for people who couldn’t manage their money – meaning only losers went into debt. It was a matter of pride to pay cash everywhere. People even paid cash for cars. People didn’t use credit cards, and it was a matter of shame to do so.
How to Impress a Woman
It is impossible to live without credit today. A potential employer will run a credit check. Of course, you can’t rent or buy a residence without good credit. Not only that but think of how cards are marketed – with an element of prestige! Your Gold card will turn heads. Used to be that if a man wanted to impress a woman, he’d flash a roll of bills. Now – just the gold (or platinum) card.
I see young people with $20K or more of credit card debt. And they have no idea how long it will take to pay that debt off. Don’t get me wrong – I’m not necessarily anti-credit. The practice of my own household is to run as much as possible through various cards to obtain the airline miles and hotel points – but I pay the balance in full when the bill comes. I distinguish between good credit and bad – the good being used to acquire an asset, such as a home or an education, and the bad used to merely gain an experience.
There is no empty envelope when all you do is tap! Meaning there are no guardrails on your spending, making budgeting all the more important. What amazes me is that many of these same young professionals thank us profusely for helping them to get in charge of their cash flow – even calling it the fun part of the planning engagement.
The Federal Reserve
Until 1971 our greenbacks were backed by gold and silver. After that point the backing went away, and we now have what’s called fiat currency – simply created by the US central bank. As we have more inflation, savvy investors have looked to crypto assets as a store of value – Bitcoin, Ether, etc.
What’s happened is that the world looks to the unelected officials at the Federal Reserve for monetary policy and direction. And just how well has that gone? When inflation is up, hard assets go up as well – tangible things that store value, like gold, silver, and now, increasingly, intangible things, like Bitcoin.
