Personal Finance: The Reality of Money

An Utterly Brief History of Money

Before money was around people used the barter system. I put a shoe on your horse and you give me eggs and butter in return (let’s make that a cigar and a bucket of homebrew). This was a cumbersome process and people found that coins were simpler, solving such obvious problems as the need to sometimes barter a bale of hay for half a pig.

The wealthier ones hoarded gold, which was usually left at the goldsmith's for safekeeping. The goldsmith gave out receipts for each bar of gold, and if you needed some gold to pay a debt, you went to the goldsmith, handed over your receipt, withdrew the required amount of shiny stuff, and delivered it to your creditor in payment. This was also cumbersome and the citizens found it was easier to use the receipts themselves as a means of exchange.

If I owed you two bars of gold I simply signed two of my receipts over to you. This entitled you to withdraw two of my bars of gold from the goldsmith when you wished. After a time the receipts themselves started to act as money and eventually few holders bothered to go to the goldsmith to withdraw the physical gold.

As civilization grew, and business became more and more complex, banks gradually replaced the goldsmiths and finally receipts issued by banks took over from the goldsmith's receipts. Then the banks started to issue their “bank notes” (a note is a term for a loan document) because it was more convenient for their customers to have money in various denominations.

However, banks are not immune from disaster and occasionally a note-issuing bank would go broke, causing huge losses to those unfortunate people who held notes issued by it. One by one the government of each country took over the issuing of money and the banks gave up doing it.

As you can see, the need for convenience changed the system and it is still changing today. We now live in a society where many people hardly see money at all. Their pay goes direct into their account and they withdraw it by debit card or by writing checks. Despite the change in the method of completing a transaction the essential nature of money has not changed — it is a means of exchange. It enables us to exchange our goods and services for the goods and services of others.

The Root of All Evil

Unfortunately, far too many people focus on accumulating money and forget the main game: “The goal of a virtuous life is to become like God,” as St. Gregory of Nyssa put it.

When it comes to desiring money, the Bible says, “But those who desire to be rich fall into temptation, into a snare, into many senseless and hurtful desires that plunge men into ruin and destruction. For the love of money is the root of all evils; it is through this craving that some have wandered away from the faith and pierced their hearts with many pangs” (1 Tim. 6:9-10).

Money in and of itself is a neutral commodity, but the desire for it poses some serious problems.

Hence we need to clearly and consciously exercise the four cardinal virtues — prudence, justice, fortitude and temperance — when dealing with money. All of these virtues play their role when it comes to responsibly managing the money that comes into our lives.

• Prudence means that we constantly discern the right course of action when it comes to paying bills, charitable giving, saving and accumulating money. Like the Parable of the Talents, one should be prudent in gaining higher returns for the gifts that are given to us, which include the gift of money.

• Justice means that we give due honor to God and our neighbor. Doing good to our neighbor includes thinking of ways that society will benefit from the investment decisions we make. We want to create a safe and wealth-producing society that ensures all of its members derive benefit.

• Fortitude means staying on course while pursuing the good. As the Catholic Catechism says, “It strengthens the resolve to resist temptations and to overcome obstacles in the moral life.” This is very relevant when it comes to the accumulation and spending of money. We need to stay on financial and moral course with our investment goals and spending habits.

• Temperance means that we don't waste money on frivolous pleasures, which is so easy to do in our media-saturated society. Temperance “ensures the will's mastery over instincts and keeps desires within the limits of what is honorable.” Our investment goals and spending must be honoring to God, our families and neighbors.

Money cannot buy happiness, health, contentment or good relationships. However make no mistake about it — money is important in the areas where it works. These include providing a home, a good education, top health care, the opportunity to help others, clothes, and the chance to experience the excitement of travel. What I like about money is that it enables you to make more choices in your life, choices that are based on what you want to do, not on what you have to do.

Now let's consider a few basics.

Money Won't Make You Happy

To be honest, most of us have dreamed of having millions of dollars in the bank and spending our lives jetsetting around the world's beautiful spots living a five-star lifestyle.

Well, if that's your goal, and you work hard and give up enough for it, you might even get there. However, in reality, most of that stuff is dreamed up by Hollywood filmmakers (watch next time to see how wealthy most of the movie characters are) and, although the fancy mansions and the huge yachts do exist, there is plenty of evidence that the lifestyle does not make for happiness. If you want proof, go to the local library and read some biographies about the so-called glamorous people.

One can look at the many saints of the Church to see that many lived fulfilling lives without being hung-up about money. In contrast I know some financially well-off people who are often unhappy because they don't realize that enjoying what they have is more important than the amount of money they possess.

On the other hand, there is a huge connection between being unhappy and having money troubles. It is no fun to watch your car being towed away because you failed to make the payments, to arrive home to find your power and phone have been cut off, or to lose your home because of interest rate rises.

Why Accumulate Money?

Money is a medium that enables you to exchange your services for that of another. However by itself it is useless — if you are stranded in a burning desert, a suitcase full of money won't quench your thirst. What counts is what it can do for you.

Because you use money to pay for another's services, and you receive money by providing services, you should understand how it follows that the amount of money you get depends on how much service you can give.

Even though money won't make you happy, building up a store of investment capital will provide financial security and enable you to have more choices in what you do. Consider the following:

• When you have money saved up, you can pay cash for what you want instead of borrowing and paying interest. As most people pay hundreds of thousands of dollars in interest over a lifetime, it follows that reducing the interest you pay gives you money available for more productive purposes. If Susan is paying $300 a month in car repayments and Rachel has a car that is free of debt, Rachel has $300 a month more spending money available.

• The investment capital you build up provides opportunities for you. It is likely that you will have a chance to start your own business at some stage in your life, which usually requires having some money to invest in it. Wouldn't it be a shame if you missed an exciting opportunity just because you had neglected to build up some capital for that purpose?

• Building up money gives you confidence in your ability to generate income and accumulate wealth. Once you have this confidence, you know you can do it and you won't be frightened to invest some of your capital in riskier

projects. Fear of loss has held many people back and it is true that as you get older you are less able to take large risks because you do not have the time to rebuild your wealth. If you are going to lose some money, it is better to do it when you are young. Wouldn't it be a tragedy to realize when you are old that you could have achieved your dreams had your fear of loss not held you back.

• Money gives you more freedom. Once you have established a capital base, either by accumulating income-producing investments or by building up a business, you can take a break from your job to explore other areas in your life. Certainly it takes time to get to that stage but it's a wonderful feeling to be able to take a month off to trek through the mountains or even to take a morning off to attend one of your children's sporting events.

Now that I've covered what money can and can't do for you, next time I'll move onto the principles of responsible wealth creation. If you have any questions please email me at


Book: “A Father Who Keeps His Promises” by Scott Hahn

Book: “A Change of Heart” by Marcus Grodi

Video: “Hollywood vs. Catholicism”

Video: “In the Beginning”

Discussion Forum

What techniques have you employed to work out your way out of financial difficulties?

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