Why we make mistakes with money
Money, the truth is, is never enough for us to satisfy all our needs at a go. This is confirmed in many ways by early observers of human behaviour, who observed, and quite aptly too, that human needs are insatiable but then the resources needed to satisfy these needs are rather limited.
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The limited resources force us to make the choice between what is necessary to have, and what is nice to have- perhaps!
What this means is that as there is never a moment of abundant cash for many to satisfy all that they would like to have, often, you would have to make a decision on what to have today and what will have to wait until the next available funds.
Well, the reality, as we often say, is less romantic so you wouldn’t always find people following this approach in their economic decisions, decisions of choice because of scarcity.
To this end, it is never surprising to find people living above their means, that is, sometimes even to the extent of borrowing or stealing just because they have the urge that all their desires must be met, at all cost.
Mistakes are made, for example, when instead of waiting for a few months to buy the dream car that you want from your savings, you rather borrow money to buy, incurring more cost in interest, fees and charges.
There are several teachings on money and why it has to be properly managed, yet, it is still the case that most of the world’s problems are caused by “mistakes” with money.
Take the case of terrorism for example. Those who promote terrorism are either those with cash and therefore are in the position to sponsor the act, or those at the bottom of the social ladder who feel marginalised and therefore are prepared to fight for their “freedom”, sometimes sacrificing their own life.
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The recent credit crunch that accompanied the complex web of competitive greed at all levels in the aforementioned global financial crisis only proved the ravaging effects when we make mistakes with money.
We have understood money to the extent that it has become some form of ritual. Individuals, companies, civil society groups and political parties are often influenced by monetary gains in their acts than the collective good of the people, all because they have to speak the right way, and they do so when the money is there - grammar-wise!
“Money”, wrote the anthropologist Mary Douglas, “is only an extreme and specialised type of ritual”, and to that must be added its influence on the not-so-informed, who would borrow to a suffocating level.
And is it always the case that it is only those who are “not-so-informed” that will end up in financial difficulties? Also, why is it that with all the history we have about the effect of poor cash management or borrowing we still have the same lessons recurring?
To the first question, the sad reality is that often times, it is even those who are supposed to know better, as far as managing money is concerned, that end up with the most debts. The so-called middle class, because of their ability to borrow, have the debts, with less cash.
Many within this class have accumulated liabilities, and not assets, to the extent that in some cases, even the cooking utensils at home are secured on credit! They are caught in the ritual of buy-now-pay-later, and with their “thorough” understanding of the language of money, they seem happy to immerse themselves in it.
To the second question, l would rather attempt an explanation by borrowing heavily from a quote from John Kenneth Galbraith (1908 -2006), a Canadian and later, American economist. A long-time Harvard faculty member, who stayed with Harvard University for half a century as a professor of economics, he profoundly once commented on the “extreme brevity of the financial memory”.
“Financial disaster is quickly forgotten. In further consequence, when the same or closely similar occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliant innovative discovery in the financial and larger economic world.
“There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present”, says Galbraith.
In effect, we may understand a “language” but as it is the case most times, not every word of it. So too, we may understand money but not so much what it truly means. Therefore, to stay off mistakes with our money, we must pay heed to the lessons of the past, and guide our actions and plans with prudence.
(botabil@gmail.com)