What is Money, Really?

“Do they have a smartphone app for that?”

Familiar question. Several thousand years ago, if you asked about how to buy something, the “app” would be money.

Why is this important? Imagine carrying around leather coats you just finished stitching together from hides you tanned from an elk you shot and skinned, with the hope of finding someone willing to take them in exchange for that new smartphone you want …. Or imagine having to wash dishes at a restaurant to pay for the meal you wanted. Not fun!

The advent of money was a big deal in finance. It created a standard. As long as everyone accepts the value of money as a currency, it allows you to handle many financial transactions: you get paid, you buy goods, you pay for services, and you save.

Money stores the value of what you do for work. Without it, you would still be using the barter system, and you would have to be prepared to offer many jobs or diverse goods to make trades. Barter is:

the exchange of one good or service for another good or service.

Money splits up the barter exchange: one person pays you money for your good or service; and you use that money to go buy the goods or services you want. This way, you no longer need the “double coincidence of wants.”

Also, as soon as you can store the value of your work, new possibilities arise. First, you no longer need to be able to offer many services for barter; you can develop a special skill. And second, money is “liquid,” meaning it is available whenever you need to use it (compared to something you have to convert into money or get out of storage). Finally, you can save up to buy big ticket items.

But how do you save enough to buy a car when you need the car to go to work to earn and save money? There’s an app for that, it’s called credit – credit cards, revolving credit, short-term loans, long-term loans, etc.

The advent of loans to buy cars, sewing machines, refrigerators, and other items was another big deal in finance. The short-term loan from a bank allows you to purchase and use a car right away (if you have good credit). Same goes for using a mortgage to buy a house.

Credit cards are not money; they are a form of short-term loan from a bank that you can use in place of money for purchasing goods or services. You then repay the lender all that you borrowed plus interest.

Of course, to keep your credit good, you have to make all the payments on your credit cards, car loans and mortgage on time.

We now use apps to pay with our smartphones in place of money and even plastic credit cards. The apps, like credit cards and money itself, are all part of finance.

While this all sounds wonderful, there are some serious hitches: as soon as you introduce money, you find many companies make money off of you almost any time you use money or credit: bank fees, PayPal fees, investment fees and commissions, interest on loans, share of profits on sale, life insurance commissions and real estate commissions.

But then again, money permits you to purchase and own another type of asset: investments.

More on fees and on investing in future posts.

Steven A. Branson, Esq., is the founder of wokemoney.com, a website devoted to empowering people as their own money manager launching later this year.  For nearly 30 years, Branson has been creating financial plans for individuals and families of all ages, coaching them on a personalized path to achieve their financial goals.  Branson has a law degree from Harvard Law School and is known for his financial articles geared toward young people.  In his spare time, he is a musician, a graduate of Berklee College of Music who leads his own jazz band, playing tenor sax, and a photographer, who contributes to 500PX.  Branson’s writing and financial tips can be seen at our blog at www.millennials-money.com and IRIS.xyz.


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