Everywhere we turn, we see stories of people losing their money. Maybe they were scammed by a work-from-home scheme. Maybe they invested their money in the stock market. Maybe they just can't resist a payday shopping spree. The fact remains - people in America spend more money than they make. So why do people lose their money so easily?
To answer this question we have to consider the pressures to spend money and weigh them against the urge to save money. Let's begin.
Money lost through investing
Many people will regale you with the saga of how they lost their life savings on the stock market. These stories were common after 1987's Black Monday, when the tech bubble crashed. They're common today, with the huge slide in equities prices. The reason so many people lose money on the stock market is simple: the average investor buys when the market is high, hoping it will rise higher. Then they sell when the market is low - in despair (economists call this "capitulation") because they fear their investment value will go to 0.
Keep in mind that many, many people lose money through investing. Some people lose money by shifting 401k contributions from a low-priced stock to a high-priced, but safer, Treasury. Many thousands of people are doing this right now and virtually guaranteeing a long-term loss.
Money lost to scams
We've all opened up our email and seen a note from a Nigerian millionaire's widow, who just needs a little help to get her husband's wealth released from a government agency. Oh yes, and she's willing to pay you for your time, too! You may wonder who's so dumb as to fall for such a transparent scam before you delete the message.
The truth is, thousands of people fall for the notorious Nigerian 419 scam every year. (That's the reason the scammers keep sending the emails - they're profitable!) There are several other common scams perpetrated via the Internet, including:
- the eBay auction that sells a fake product but charges hundreds of dollars in shipping fees (nonrefundable)
- the Craigslist buyer who offers to send you a check or money order in excess of the price of the product you're selling
- the fake roommate who needs you to deposit a check or money order as a deposit
- the phony bride (often from Russia, but frequently from nearly anywhere in Eastern Europe) who extorts money from lonely men
The on-line world has offered the unethical a vast new collection of people to scam from. Yes, it's easy to lose money in any of these on-line scams. That's why the scams are still around.
Losing money from shopping
If you're like me, then this has happened to you: you go to the mall with some money in your pocket. You eat lunch, you browse some shops, maybe you meet some friends. Hours later you realize that you're at home with a couple of shopping bags. When you check your credit card statement you're simply stunned at the amount of purchases you made.
Many people shop because it's relaxing. Shopping allows you to feel in control of your identity and your destiny. Salespeople are courteous and helpful - you feel like a millionaire! But then you wake up with a retail hangover and bills to pay.
Merchandisers and retailers know that we love to shop. They count on it. They spend millions researching and fine-tuning the exact sort of displays, and offers, and information that will make us buy things from them. Every time we walk into a retail establishment we run the risk that we'll buy something, or many things, that we don't need. We can barely help it.
Why don't we save?
Ultimately, people lose money because it's difficult to save. Why is that? Here are some reasons:
Spending is easy, saving is hard
Spending money results in instant gratification. Saving money produces nothing in the short term. Indeed, it may be years or even decades before the benefits of saving money are realized.
Businesses and marketers work hard to make us spend
How often do you see a television commercial promoting savings? Almost never. On the other hand nearly every TV commercial promotes a product or service that will cost you money. How many of these things do you really need?
Spending is good for the economy
Over two-thirds of the American economy is supported by consumer spending. When we decide to save our money, we're met with increasingly aggressive promotions (really veiled demands!) by retailers to fork over our hard-earned cash. If we don't, then we're causing unemployment. We're contributing to poverty in America. Keynesian economists refer to the "paradox of thrift" - the idea that, for every dollar consumers save, a dollar is lost by a working person.
Saving money is hard. Saving requires foresight and willpower. On the other hand, losing money is easy. All you have to do to lose money is listen to TV commercials, invest in the stock market, buy a house, try to help out a nice Nigerian widow. Because the world wants your money, it will always be easy to lose.