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"Money is supposed to be spent!"
"Money is supposed to be saved!"
We may not hear talk-show participants shouting these opposing views at each other with the same level of anger that characterizes some of our political rhetoric. Yet the core polarization that pervades so much of today's society also shows up in people's beliefs about money.
I saw this polarization recently in a conversation with a group of friends in Europe. The topic of money came up, as it usually does when people find out one of my specialties as a financial advisor is financial therapy. My friends thought that money is meant to be spent, not saved. They felt that people who saved money were faithless and greedy hoarders who, by their saving, threaten the economic system.
At the other extreme, I know other people who strongly believe a person’s first duty is to save and invest. According to them, those who don’t save as much as possible for emergencies and retirement are foolish, deluded, irresponsible and destined to live out their last days in poverty.
My “spending” friends are likely to hold a money script that "the universe will provide." They tend to fall a category that researchers of money psychology have labeled “money avoiders.” Those who embrace the script that "money is to be saved and not spent," who also believe "one can never really have enough money," are ”money worshipers.”
Like most other forms of polarized thinking, neither of these extremes is right. Nor is either belief wrong.
Money does need to be spent. The health of our economic system depends on transactions. It’s important that money flows through the selling and buying of goods and services. When a significant number of consumers stop spending, economic activity stops. We saw the effect of this in the financial crisis of 2008. It’s also important to spend money to take care of ourselves and our families. Saving or investing money to a point that we go without adequate food, shelter, health care or similar necessities is not healthy.
Money also needs to be saved to provide a cushion against emergencies and to provide for our needs in retirement. My European friends enjoy a higher certainty of adequate income in retirement. For them, this is the universe providing a strong government security net. However, those that live in many Asian countries are assured very little, if anything, in the way of retirement income. For them, the universe comes up short and they depend upon the generosity of family to provide. Saving in an Asian culture is therefore much more important than if you live in a Scandinavian country.
Saving and investing for retirement is important for those of us in the U.S., as well. Without it, we face two dubious prospects: depending on family to provide or eking out a meager living on a Social Security payment of around $2,000 a month in retirement.
Those who are not polarized around money understand that both spending and saving are important for financial health. They balance their spending and saving, applying both when necessary in their own lives.
Ideally, from this balanced middle ground, someone can see past the limitations of others who are polarized. Money avoiders and worshipers each have a world view that results in such an extreme position. Labeling them as "wrong" is not a useful way to try to shift anyone's polarized beliefs.
Rick Kahler, MSFP, ChFC, CFP®, CCIM, is president of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives