Over the course of thousands of years, the character of money has gone through various metamorphoses. Bartering was the chief method members of a society acquired their individual needs until they developed shortcuts. Since that first shortcut, societies haven’t stopped creating more shortcuts, further separating the method of acquiring something from those things that are acquired.
Money is just a temporary replacement for things, with a value that everyone accepts as a standard. If you have meat that I need, but you don’t need the clothing I create, I can give you money rather than clothing. You can then take that money to someone else and offer it in exchange for something you need, like knives to cut the meat you offer to your customers. Here, money is only a tool for getting the materials you need.
This money is the first level of abstraction — a representation, just like a word is a representation of an idea. Abstraction layers are helpful because they allow replacements to be used with the same monetary value of items that aren’t available. That is, you use coins to buy the meat because you don’t make the knives the butcher needs.
The next abstraction layer is credit. You don’t need cash on hand when you can pay with credit cards. Technology has led us to what must be the final abstraction level conceivable; a world where our “money” exists only as bits of data, zeroes and ones, in a bank’s master computer database. If we need cash, we can exchange some of those bits, lowering our balance in the database, and receive cash out of a machine, but that’s less and less necessary when we can pay for more things electronically. Debit cards, ACH transfers, and Federal Reserve wires don’t necessarily involve any cash, just a rearrangement of data in computers.
This technology makes it much easier to keep our hands off our own money. This should be one of the best things that can happen for the state of our own personal finances. Pay checks are delivered right into our bank accounts. Employers don’t send cash to their employees’ banks, they transfer “electronic funds.” The banks receive instructions electronically and increase the balance in your checking accounts overnight.
If you have created automatic savings or investments, the bank will make these transfers without any human intervention. Those consumers who take advantage of all that technology has to offer have likely put as much as possible on auto-pilot, including paying bills electronically and perhaps receiving automated shipments of underwear every three months.
Therein lies a problem. Automation is an abstraction layer that separates you from your money. While much of the automation we’ve discussed on Consumerism Commentary is designed to take good habits, amplify them, and make them occur without thought and without the interference of human error, if you take this concept too far you cede control of your finances.
Going back to the original bartering system, the things we make have intrinsic value. As you increase abstraction by using money that represents those things, the credit that represents that money, the digital bits that represent both credit and money, and the automation that keeps your brain away from the decision-making process, the real value becomes further hidden.
Here’s the result: it’s easier to spend more than you need to the further you get away from intrinsic value. We know this because despite best intentions, overall people spend more with credit cards (a higher abstraction layer) than they would with cash (a lower abstraction layer).
While it’s a good idea for the basics to remain automated, return your brain to your money and get involved with spending decisions. I have a good personal example to share. A few years ago, I set up automatic payments to take care of my electricity and gas bill from PSE&G. I’m busy, so I don’t like to be bothered with writing checks and sending them through the mail. But that’s the same excuse I have for hardly looking at the detailed electricity bill.
I used to be familiar with my energy usage trends as well as the fluctuations of energy prices, but no longer. I look at my checking account balance online every few days, so I notice when the bank makes the bill payment for me, but I have not looked at monthly trends to determine what I could do to cut costs. As a result, I’m likely spending much more than I need to.
It takes time and effort, but it will be worthwhile to become involved with your own money once again. If you made your automation decisions many years ago like I have, you might now be in a different situation requiring different decisions. If you’re not intimately involved with your money, you’re likely not making enough decisions, and as a result, your future may not be as financially secure as it could be.