1. Know the difference between money and fiat currency
All currency is money, but not all money is currency.
Money is any material that is valuable and can be traded for something that is needed. Currency, however, is something that is valuable because a government has said it is valuable. A fiat – or governmental order – is made declaring something can be used to make purchases or pay debts.
In other words, a government can declare a piece of paper be used in place of money.
There are two problems with using ‘fiat’ currency. First of all, governments usually decide how much a currency is worth. And in Capitalist systems, prices are always going up. This means that a dollar yesterday wont be able to buy the same amount of goods and services tomorrow.
Lets say the year is 1970 and you want to save money for your first born to buy their own home when they are 41 in the year 2011. The median price of a home sold in the United States in January 1970 is $23,600, so thats what you save up.
Fast forward to January 2011, and the median home price in the U.S. is now….$240,100. Thats a price increase of 917%. Your child doesn’t have enough to put a 10% down payment on a property, let alone buy it outright because you passed fiat currency on to them instead of real money.
The second problem with using fiat currency is that if too much or not enough currency is in the system – or people are not using the currency – it is no longer as valuable.
One of the reasons the American dollar is valuable as a currency is because other nations agree to use it alongside their own currencies. If these nations stopped doing so, dollars would become much less valuable.
Trade wars, government mismanagement, and inequality all threaten the value of currency.
Money is different. Money retains its value from generation after generation. A gold coin could buy you a nice suit of clothes in Mansa Musa’s kingdom, and a gold coin can buy you a nice suit today.*
*The current value of a 1 oz Gold American Eagle coin (which contains 31.104 grams of pure gold) is $1356 , while the value of one ounce of pure gold is currently around $1295.
The value of the Brazil Real, the American Dollar, and the Malawian Kwacha goes up and down. But real money holds its value.
The New Blueprint For Building Black Wealth: Convert your currency into real money as quickly as possible if you want to increase your wealth.
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