Money was invented to solve a logistical nightmare, but somewhere along the way, it became a psychological trap. We feel anxious about possessing more of it, all the time. To understand our current anxiety created by money, we must look at how the role of money has evolved and distorted over time.
The Solution (Money as a Tool)
Originally, money was simply an answer to the limitations of the Barter System.
In a barter economy, trade required a “double coincidence of wants.” If you made shoes and wanted wheat, you had to find a farmer who had wheat and happened to need shoes. If the farmer didn’t need shoes, you starved.
Money solved three critical problems:
- It acted as a Medium of Exchange: It eliminated the need for coincidence.
- It became a Measure of Value: We could finally compare the value of wheat against the value of a pair of shoes.
- It allowed Storage of Value: This bridged the gap between production and consumption. A tomato farmer has a harvest that only lasts two weeks. Without money, he must trade all his tomatoes immediately or they rot. With money, he can sell his crop, store the value (coins/cash), and use it to buy blankets six months later in winter.
The First Distortion (The Object of Desire)
The underlying purpose of money was to facilitate the cycle of Produce >Trade>Consume.
However, money eventually took on a life of its own. It shifted from being a means to an end, to becoming the end itself. Because money represents the potential to consume anything, it provides a psychological safety net. But this created a second derivative problem: We stopped chasing what money can buy, and started chasing money itself.
This has led to a disconnection between our lives and our labor:
- The Hoarding Trap: We accumulate paper and digits, seeking the assurance of future consumption, often without knowing what we actually want to consume.
- The Career Crisis: Instead of aligning work with our strengths or passions, we prioritize the path of highest monetary return. We replaced the pleasure in producing something that is aligned to our strengths, with the pleasure from consuming anything.
Consider the talented artist who becomes an investment banker solely for the paycheck. Many of us today are trading our actual time and talent not for goods we need, but for a “score” in a bank account, hoping it will buy us happiness later.
As financial planners, we regularly meet clients who want to reverse this and go back to their area of interest and strength. They seek for financial freedom to pursue what they feel good about.
The Second Distortion (The Idle Growth)
Our expectations shifted further. We stopped viewing money as a “store” of value (keeping it safe) and began demanding it be a “generator” of value.
We expect money sitting in banks or investments to multiply. To an extent, returns are necessary to combat inflation (preserving purchasing power) or grow reasonably. However, it has been distorted into culture of unreasonable expectations.
This financialization of life has legitimized a form of economic laziness: expecting capital to work harder than labour at a very early age. It has pushed people toward high-risk gambling under the guise of investing, driven by a greed to grow the pile beyond any reasonable need for consumption. As per SEBI’s study released in 2023, percentage share of participation of individual traders (20-30 years ) went up significantly from 11% during FY19 to 36% during FY22.
There has been a rise of speculative bubbles (like meme stocks or volatile crypto-assets). People are not investing in the utility of a company or technology; they are betting that their money will magically spawn more money, independent of any real-world production. The results of this behaviour are evident. Eventually these high and uninformed decisions end up in losses. As per the SEBI study 89% of the individual traders (i.e. 9 out of 10 individual traders) in equity F&O segment incurred losses.
Many young investors want to retire early with a false expectations that the returns on their savings/investments will be enough.
The Third Distortion (The Time Trap)
Finally, money altered our relationship with time through Credit.
Credit allowed us to reverse the natural order: Consume>Trade>Produce.
There is a good aspect of this order.For a producer, credit is a lifeline. It buys the tractor that helps grow the corn. However it also led to overleveraging for depreciating assets. For a consumer, it effectively sells their future freedom. It created a market of “rash loans” where we buy things we don’t need, using money we haven’t earned yet.
Buying a home is productive debt (it replaces rent and builds an asset). Buying a luxury vacation on a credit card with 20% interest is a distortion. You are enjoying the consumption now, but you have enslaved your future labor to pay for a memory. Nothing wrong with a nice vacation, but a better way is to plan for it.
Reclaiming the Relationship
Money has evolved from a helpful assistant into a demanding tyrant. It confuses our career choices, fuels unnecessary greed, and tempts us to mortgage our future. As financial planners, we assist our clients to fix their relationship with money….money that was truly created as just a battery – a way to store the energy of our labour, until we are ready to trade it for something we truly value.