When I started this blog a year ago, I used the ‘About me‘ page to tell the story of my childhood dreams of a money tree. How I planted my pocket money in the hopes that it would sprout into an everlasting supply of wealth.
Because the truth is, there is such a thing as a money tree.
‘Money doesn’t grow on trees’ is not only a common idiom. It’s also the name of several books. These include Godfrey’s Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Fiscally Responsible Children, and Hudson and Hill’s similarly titled children’s book.
Chances are, you probably heard this advice from your parents. Or if you’re a mum or dad, you may have even said it.
It’s an idiom that essentially means you should be careful with your money because there is only a limited amount. You can’t grow more, and money isn’t free, you have to earn it. But in her guide ‘Teaching Children Money Management‘, Jewkes asks parents to consider what kind of messages they might be sending their children through phrases such as this.
And it’s not only parents who use this phrase. Politicians love it too.
The ‘magic money tree’
Perhaps the most infamous recent example is Teresa May in the UK. Her use of the term ‘magic money tree’ Chris Marshall pointed out, ‘appeared to sneer at an electorate too thick to understand why public services cannot be properly funded’:
Let me put this in language you’ll understand, it seemed to say, money doesn’t grow on trees.
Why kitchen table economics don’t apply to countries
Let’s consider debt.
Say you are 40 years old, and have a $400,000 mortgage. It makes sense you’d probably want to pay off your mortgage before you retire.
But a country is different. A nation, unlike an individual, doesn’t have a defined working life. Even if you plan on working forever, eventually, you will die.
A country, on the other hand, should go on in perpetuity. There should be new people being born, immigrating, and beginning jobs everyday. Most people in the world live in areas where the birthrate is at or above replacement. And even in the 48% in sub-replacement areas, immigration, population momentum, and increased longevity mean most are still growing.
Of course, infinitely continued growth of anything is not sustainable long-term. But maintaining a certain level of debt to invest in public services and infrastructure is not necessarily the danger we are led to believe it is.
The same is true of money:
Say you go down into your basement and start printing your own money. Or perhaps you fiddle with your bank account and add a few zeroes. Obviously, that’s illegal.
But banks continually create more money.
What we imagine:
Most of us imagine money is created by a central bank, like the Federal Reserve or RBA. Commercial banks, like Citibank or ANZ, we believe, are in the business of loaning and receiving this money.
When we invest our money in a savings account, we imagine the bank lends it to others, giving us a portion of the interest they make.
But according to Lord Adair Turner, the former UK chief financial regulator:
‘Banks do not, as too many textbooks still suggest, take deposits of existing money from savers and lend it out to borrowers: they create credit and money ex nihilo [that’s a fancy Latin way of saying ‘out of nothing’] – extending a loan to the borrower and simultaneously crediting the borrower’s money account‘
The central bank does create ‘base money’. It can print money. But most money is not in coins and notes these days. Only 10% of US currency exists in physical form. Most of it is numbers on a computer screen. It can also perform ‘quantitative easing’, buying assets including government or company bonds to stimulate the economy (like we saw after the Global Financial Crisis).
But in contemporary money systems, commercial bank activities greatly expand available money by creating ‘broad money’. I first heard about this years ago watching Money as Debt.
Through fractional reserve banking, a commercial bank can hold a small fraction of money, and then lend more than this – effectively creating new money.
If money doesn’t grow on trees, why do banks have branches?
So there definitely is a ‘money tree’ – more than one in fact – accessible to governments and banks in the form of money creation. Obviously, it has to be used responsibly. Creating too much money can devalue the currency, or cause runs on the bank or enormous crashes.
In that sense, May is right – there is no ‘magic’ money tree. That’s why we need to make smart decisions about how we use money.
Investing in schools? The healthcare of the public? These can pay great dividends in the future.
A billion pounds for political deals? We’ll see.
Your own private money tree
While running your own mint might not be an option, I believe that money trees are available to us private individuals too.
Switching to a bank account that pays you interest above the inflation rate? That’s essentially getting money for free.
Borrowing money for an income-producing asset? That can be a smart way of using debt.
Money does not (necessarily) equal effort.
‘Money doesn’t grow on trees’, teaching that you can’t have something without effort, might be noble, but it’s not a wealthy mindset.
As I mentioned in my review of the lessons apps teach kids about money, while a ‘money tree’ in a game may seem to teach children entitlement, there may be important parallels with investments. Children can learn about the notion of value increasing over time. The importance of patience. And seeing as many bank accounts have incentives such as a higher interest rate if you deposit a certain amount, the importance of regularly checking investments.
And I’ve come across at least one financial literacy program that is now sending the message ‘Money Does Grow on Trees‘. Their (free) ebook lists a number of popular sayings and beliefs that can lead to (or at least reflect) a scarcity mentality. Have you heard, said or thought any of these?
- “I can be rich or I can be happy, but not both”
- “People who have a lot of money are selfish and greedy”
- “My family has never been rich, so my children won’t be rich either”
- “It’s unspiritual and materialistic to want more money”
- “Money is the root of all evil”
Ultimately, both parents and politicians need to be careful about the money messages they send.
And we need to be careful in how we interpret sayings that can seem like good old-fashioned common sense.
What is true for the householder is not necessarily true for the policymaker, and many sayings ‘ain’t necessarily so’.
An important lesson
Learning we really could plant a money tree has been one of the most important lessons we’ve learned.
Every six months, we receive payments from companies we’ve never worked for, simply because we own a tiny portion of them through shares. Every month, we receive rent from tenants we’ve never met.
Yes, we had to work for the initial amounts to buy those investments. Just like I had to work for the pocket money I buried in the back yard. We paid for the ‘seed’. But the fruits that grow each month or half-yearly are very much like our own money-tree.
I’d like to propose a new saying: ‘Money does grow on trees. So make sure you save some seeds from your harvest’.
A prudent farmer will always set some seeds aside so they can grow next year’s crop. You, too, can start putting money aside to create your own money tree.
Don’t stop at one money tree. Plant a whole forest.
Today is Enrichmentality’s one-year ‘bloggiversary’! I started this blog one year ago with the intent of planting a little seed and seeing what it could grow into. Over 200,000 views, 300 comments, and almost 100 posts later, please let me know what you’d like to see on Enrichmentality in the coming year by completing this super-fast anonymous survey (under 1 minute!)
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