Financial Literacy: Why Money is not Wealth

I have defined money many times in articles on this blog.  Money includes currency; it is a means of exchange and it represents value outside of itself.  Money has no intrinsic value; its value is directly related to its general acceptance in the population.  Money is a means of measuring wealth, and a store of wealth, but it is not the wealth itself.  So what is wealth?  Wealth is personal, material property; wealth is accumulated income, earnings, savings (stored as money); wealth is income producing assets.  Wealth can be created, earned, dissipated, stored, inherited, accumulated, expropriated.  Wealth is always relative; when we say a person is wealthy, we mean in comparison to others.  A person on welfare in our society today often lives much, much better than the wealthiest of the so-called robber barons of 100 years ago.  How do we compare a poor household of today with a large flat-screen TV, numerous digital toys, e-mail, and air conditioning and a microwave with the rich of the 19th century who did not have indoor plumbing or telephones?  When we talk about eliminating poverty in today’s terms, we are using very, very relative terms. 

In any context, wealth represents a responsibility and potentially a burden; wealth requires action not only to earn, but also to preserve.  If a person’s wealth is greater than he is, he will lose it (or she, of course).  Wealth is created by work, primarily the use of one’s mind, and by good judgment.    When the mindless inherit wealth, unless there are appointed guardians of that wealth to protect them from their own foolishness, the wealth will diminish and eventually disappear.  The most important type of wealth, for the financially literate, is assets that produce income.  This is when your wealth is working for you.  Ultimately your wealth is measured in time, not money.  How long can you survive financially without working, without even getting out of bed in the morning (if you didn’t want to)?  Are you one-day wealthy, one month wealthy, one year wealthy, or the rest of your life wealthy?  Likewise, whenever the human mind devises a way to produce more goods and services that improve the human condition with less time and effort, wealth is created. Wealth and money are frequently confused, and those who cannot understand the difference are at a serious disadvantage in the competition for limited resources.  For a short video on why money is not wealth, go to:  http://www.youtube.com/watch?v=9iVebppIIFA

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