Answering 5 questions about money

November 26, 2021

Allworth Co-CEO Scott Hanson shares a brief explainer on the history of money.

You still regularly hear, “Knowledge is power,” which originated from the Latin phrase, "scientia potentia est.”

Knowledge is power.

As an advisory firm that strongly believes in the value of education, we spend a great amount of time developing articles (and creating other educational content) that delve into as many different financial topics as we can.

That’s because the more a person knows about the fundamentals of saving, investing, and retirement planning, or even the history of money or monetary policy, the more informed decisions they are likely to make.

And, because you never really know what small tidbit of information is going to spur you to ask that one probing question that helps you make a more informed decision about money, it can be valuable to expose oneself to as much relevant financial information as you can.

Speaking of money and being that it is a holiday week – which can be a time of reflection – I thought I’d change gears this round and come up with some quick information about the history and evolution of money.

1. What is the gold standard?

The gold standard is when a currency’s value is tied to gold. Being on the gold standard meant that cash would only be issued (printed) if there was a physical quantity of gold to support it.

How so?

For example, if the price of gold was set at $500 an ounce, the value of a single dollar would be 1/500^th of an ounce of gold. ¹

Even though the gold standard was once used by both the United States and Britain (and many other countries), both began a phase-out in the 1930s, with the U.S. going completely off the system in the early 1970s.

2. Why was the gold standard used?

A major reason the gold standard was adopted was that it (in theory) was supposed to help to stabilize the value of our currency to better control both inflation and deflation.

3. What is a fiat monetary system?

Fiat money is currency that is not backed by a commodity such as gold or silver. The fact is, rare coins and numismatics aside, fiat currency itself lacks any intrinsic value. For instance, whereas once the value a U.S. dollar was backed by gold held in a giant vault in Fort Knox, Kentucky, today, the value of the dollar is dependent on the perception of the people who use it, and the creditworthiness of our government.

Contrary to currencies that were backed by a commodity, in theory, for a fiat currency to be successful, the money supply not only needs to be managed carefully, but it must also be judiciously protected from counterfeiting.

4. When did people begin using cash?

It all depends on who use you ask. For centuries, all purchases were via barter. That is, if you wanted something from a neighboring group or person, you would strike a bargain with the other party, likely trading your possession for food, a flint, or fur.

The use of actual cash came about in starts and spurts, but it’s not surprising that its evolution closely mirrored the development of the first great trade routes of Asia.

People used metal objects as currency as far back as 5,000 B.C., but the first known currency mints, where money was manufactured on an early commercial scale, came to be in about 650 B.C. in Asia Minor (now known as Turkey).

The use of paper currency in the United States began about 1690.

5. What is the difference between currency and money?

Many people use the words “currency” and “money” interchangeably, even though, technically, they are different.

Currency is the cash or coins you carry with you. It’s the promissory note that is presented for purchases. It’s tangible, you can touch, hold, and smell it. The transfer of currency is typically physical, as in you hand someone a coin.

Money, on the other hand, is intangible or numerical and takes several forms. It’s a broader term than currency. For instance, you can check the amount of money in your bank account online, or you can say, “Sarah has a lot of money,” even though she never actually physically holds any currency, and her wealth is attributable to real estate holdings, a successful business, or stock ownership.

As a reminder, the end of the year is approaching fast. While any time the calendar turns over is indeed symbolic, and an opportunity for new beginnings, the end of the fiscal year is also a time of legislative and economic change.

If you have any questions related to saving, investing, tax planning, Social Security, or your retirement plan, speak to your Allworth advisor.

And, if you are over 50, you’ve been saving for the future, and you aren’t yet a client of Allworth, because "scientia potentia est,” please feel free to give us a call to schedule a complimentary review of your progress toward a great retirement.

^{1 https://www.investopedia.com/ask/answers/09/gold-standard.asp}

Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

HMRN Insurance Agency, LLC license #0D34087

¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.