A Penny Saved

by Ouida on April 5, 2010

Why do we save? I mean really, why do we save? When I think of saving, I think of the coffee can that I used to put my money in when I was a kid. This was before passbook savings accounts. My baby brother used to put his quarters in a big green “piggy” bank. Someone broke into our house one day and stole it. I think that was when I started putting money in a coffee can. When I was a kid, I think I just liked having a can full of money. Heavens knows I never really felt free to spend it on anything. In my twenties, I discovered the easy money credit allowed and thought “why bother” with saving when I could just whip out a card. I remember telling a classmate friend of mine, who had been around the financial block once or twice, about this new thing I discovered, the credit card. I thought it was great that I could spend one hundred dollars and pay back forty. That I could spend two hundred dollars and pay back fifteen. Yippie, I thought I had found the money tree! My friend was not so sure. Now I am older and wiser. I save today to buy choices in the future. And here’s me thinking I am being older and wiser when I find in Wikepedia:

Within personal finance, the act of saving corresponds to nominal preservation of money for future use

Humm. And there we have it. Except, well, we don’t exactly save the way we used to.
Years ago we used to save by putting money into bonds and savings accounts, paying dependable interest guaranteeing the money would be there for future use. Today, savers have become investors. No longer content with saving money, we’ve become obsessed with the growth of money. The idea of diversification is simple: A portion of your savings goes into a safe investment earning dependable interest so you can have it for future use while another portion goes for investment understanding that you might not have it for future use. Once again from Wikepedia:

In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is higher.

What does all of this mean? Well there has been a fundamental shift in the way we save money and I am concerned that not all of that shift has been good. Millions of people did not recognize the inflationary spiral in the housing market and, believing the popular wisdom that housing prices always go up, paid too much for houses they could not afford. Millions of people, believing that the stock market will always go up, have chosen to place money intended for future use in a vehicle they have no control over: the stock market. Recently I read a blog post in which the author hailed the 401K as the great equalizer allowing the average Joe to participate in the stock market like the big boys. If the stock market actually translated into “free money” I might agree.

The financial world is changing, affecting how we think about something as basic as saving money. I am afraid that if we don’t stop and consider what we are doing, the money we save won’t be our own.

Please comment. What are your thoughts?

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