I keep asking this question, possibly because I don’t
think I’ve come up with a good answer yet.
Hypothetical situation: you currently have $20 in your
pocket. You have already dealt with the
four walls (food/shelter/transportation/clothing) so all that is left is a mountain
of debt and your own whims. What do you
do with that $20 bill?
I keep asking this question because it shows evidence of
what our behavior would be. There are
many options, and which of those options is selected generally aims to our long
term world view and how we see money. I
keep thinking I have two options with the money. 1) Pay off debt. 2) Invest in something with a higher rate of
return than what I would get in my pocket.
The rate of return in my pocket is 0%.
In all likelihood, by the end of the week the $20 will
have been broken up and spent. Why? Even
though I want to invest the money, I’m dealing with a trivial amount. If I walk into a brokerage house and say “I have
$20 and want to open an account” they will laugh. Or they’ll ask how much I can contribute
later.
If I take it to a bank, they’ll tell me I need another
$10 to not incur minimum balance charges in a savings account, and I’ll only
get ½% at best rate of return. Of the
$600 something I had in savings last month, I got $.03 in interest. Not much of a rate of return. It’s definitely more than zero, but it’s a lot
less than something tangible that can cause a change in behavior.
What about my kids?
They have piggy banks with money.
Probably $10 or $15 in change.
Yet I can’t do anything with it because it’s not enough. Where I could start the wonderful snowball
that is compound interest at 5 years old so when the kids grow of age, they’ll
have a stack of money, I can’t because the amount is too low.
So I’m faced with paralysis of decision, and the money
just gets spent on meaningless crap because what I want to do I can’t do
because the amount is too low. Sounds
like a business opportunity to me, if ever there was one.
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