“The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.” –T.T. Munger
Saving is Selfish.
That’s the great epiphany I had during a manic episode. Really It’s quite simple: All the money you keep is money other people can’t use. What do I mean by “saving”? A quick google definition search yields a few meanings for the word, but the two we are going to look at are:
an economy of or reduction in money, time, or another resource.(1.1 preventing waste of a particular resource)(1.2 avoid the need to use up or spend (money, time, or other resources))
the money one has saved, especially through a bank or official scheme.
What’s interesting about saving is we use the term when we are saving time by shopping online, saving water by showering less, saving children in Africa by whatever means. It’s in the negative sense, that reduction. Yet financially it also can be additive. It’s Scrooge McDuck, hoarding all those coins, collecting money, keeping it in some vault or container, either bank or piggy bank.
Interestingly, when searching for the following image -googling (clearly, my main research tool) “saving”-there are lots and lots of little sprouts and a preponderance of porcine porcelain. Just try it if you don’t believe me. ( you can select the text, right-click and click the “search for….” in the pop-up menu, little IT shortcut). What’s so interesting is that it’s very difficult to find both a spout and piggy bank together, perhaps that’s because just hoarding money doesn’t make it grow. Instead, one has to exchange it for income generating (and often appreciating) assets, stocks that pay dividends, houses that pay rent.
So why the baby tree’s and slotted piglets? Because as most ANY rich person will tell you -and plenty who aren’t who have common sense- the ONLY sure way to get rich (Yes, “sure” so no lottery, pirate chests, or dead uncles), is to save money. I take this to be so obvious to ya’ll that I won’t get into it much -nor do I offer much advice on how to save money on this site because that info is a dime a dozen elsewhere (whatever that saying comes from)- but that’s where the sprout comes in. ‘Saving’ money makes it alive, it makes it grow and replicate, like the borg or kudzu.
Saving also functions to move the buying power of money through time. Picture a little squirrel collecting nuts, without all that saving, squeakers would die come winter, very natural. Plenty of experts will recommend saving 6 months living expense so you can survive in the winter like squeakers, should you severely break your tibia or judo kick your boss’ mother in the rump, both putting you out of work, in the case of squirrels, nut collecting (both if you happen to be a nut collector for a living, *insane asylum pun here*).
Lastly, saving lets us purchase more expensive things. As children, we slave away and save away our allowance to buy a booster pack of Pokemon cards or a shiny red wagon. Because try as we may, they won’t give them to us unless we give them ALL the dollars, not just a few. So the piggy bank, keeps it for a cold day, and ‘affords’ us bigger brighter things. As a president said:
“Economy is the method by which we prepare today to afford the improvements of tomorrow” – Calvin Coolidge
So why is this interesting? What more have we learned beyond a four-year-old, facile explanation of saving? Saving is good and we should all save more right? Well, perhaps not.
The Paradox of Thrift
In the spirit of the deontological moral philosophy of German Philosopher Immanuel Kant’s 1785 work Grounding for the Metaphysics of Morals, I too try to abide by the categorical imperative (snobbish mouthful right?). Or in other words, I try to live my life by rules that I think everyone should follow. Exempli gratia g(e.g), I don’t murder people. And I hear it’s good to save money. But what if we all saved our money simultaneously?
Well, that might not be a good thing. Just think, the economy would slow down. People wouldn’t be buying as many goods or services. No more dinners out, or trips to Disneyland, no more paying people to mow your lawn or buying big birthday presents. Less demand would translate into fewer jobs. People just aren’t out buying and spending things, they are keeping that money tightly stuffed in a mattress. It wouldn’t be catastrophic; people gotta eat. However, more superfluous things and sectors of the economy would suffer. Do-it-yourself money saving industries would thrive (link: What if we all paid off our Debt?), Menards and HomeDepot would likely have a boom, along with public libraries. And according to a theory called “the lipstick effect” people would still buy luxury goods in an economic crisis, just not as expensive ones. All in all, there would be less money to go around simply because less money is going around. Everyone is saving it all. Doing what they are told. Damn those sensible do-gooders.
This paradox has been mentioned by some of the greatest names in economics; Adam Smith and John Maynard Keynes although they may get credit, the idea were actually found in a poem titled The Grumbling Hive: or, Knaves turn’d Honest, in 1705; It’s a short but tough read. And the idea may be even found in the bible. And it can interesting to read the critiques: Say’s law, suggesting lower demand leads to a fall in prices leading to increased demand. Austrian School economists suggesting saving doesn’t diminish growth in that it leads to more productive capital expenditures.
Another more timely matter where this comes into play is in the idea of negative interest rates, which are today being introduced in places like Japan and Europe. That’s where large banks have to PAY money to save and store up excess reserves, the goal being to increase lending/spending.
But this has already gotten to be a long enough article with that whole unnecessary first half. Perhaps I should have been more parsimonious with my words. ‘Saved’ them, ho ho ho. Stay ‘tuned’ or subscribed rather, for more thoughts about money. Thoughts on industry, the stock market, making money, savings sexier cousin “spending”, more cool Calvin Coolidge, and plenty plenty plenty more great quotes.
Hopefully, you have some new thoughts on ‘simply’ saving.