On Money and Wealth
In this time of economic challenge it is worthwhile to reflect on the difference between money and wealth.
Many people have been shocked by the financial and housing crisis; some of us may have lost part of our net worth (or retirement savings) measured in money. But we may not necessarily be losing much of our true wealth.
In working with millions of dollars during my financial career, I have been astonished that people rarely think seriously about what money truly is, even though they work so hard to get it.
Money simply measures how much we owe to others and/or how much other people owe us in terms of future goods and services.
If you study money in ancient times, you will find that started out being any commodity with which you could barter – such as salt, or grain or gold.
Later, kings began to mint coins made of gold, silver and other metals, which they used to standardize the values in trade transactions.
In our modern era, we have abandoned the “Gold Standard”. Governments now print money as they believe it is needed for their economy. Money is created at central banks, like the US Federal Reserve Bank, or the Bank of England.
In essence, money has evolved to becoming a series of accounting entries between central banks, commercial banks, corporations and individuals, which are utilized for the expansion of credit.
Regrettably, with this new flexibility to create money, governments have created money too quickly, which is why gold has risen dramatically in price.
Monetary expansion originally brought us rapidly rising stock markets and much higher prices for houses, but now we are discovering that our savings are being devalued by increasing inflation.
Furthermore, the world monetary system has become destabilized, which is why global stock markets have dropped so much in 2008.
What does all this mean to you or me?
Money as a scorecard is neither stable nor entirely accurate. Despite having lots of money, we may not feel rich. We might even suffer from anxiety or depression.
Wealth, on the other hand, is defined as having abundance or plenty. (An example which illustrates the meaning: “She brings a wealth of experience to the project”).
Wealth includes having plenty of both material and non-material resources. To be wealthy, is to have plenty of what you truly need.
Many of the greatest things in life cost us little, such as music, books, walking in beautiful places, conversations with friends, etc.
Wealth includes having a healthy body and mind together with emotional stability.
Wealth consists especially in having strong relationships: in marriage, family, community, and at work. These relationships are vital. No matter how rich we may be in money, without these we are poor.
Once while traveling on a corporate jet, I was struck by the realization that if I should lose my high-paying job and all my net worth, it would not be so tragic, if I still had my wife and children. But if I should lose all my family and my friends, I would be heart-broken. That is my real bottom line.
When I made some money through taking a company public, I was glad about my good fortune. But it did not make me noticeably happier than I had been in previous years, which I found surprising.
I have watched people accumulate large sums of money, but I have rarely seen it bring happiness. Some of the richest people that I know are sad and lonely.
Does this mean that money doesn’t matter? Of course not! All of us need money every day, like food and water.
Beyond a reasonable amount to meet our basic needs, having lots of money doesn’t usually bring great happiness. However, if we use it to benefit those around us, it can help to improve everyone’s wealth. Philanthropy is the only way of gaining true satisfaction from a big bank account.
We can enjoy wealth in both good and in bad economic times. Our monetary net worth will always fluctuate, sometimes wildly. But our true wealth will remain stable if we are working towards the right objectives.
Money is just a means to an end, not an ultimate goal in itself. Having this perspective is immensely comforting when times get tough.
