Save to Spend vs. Invest to Save

Interesting article - will cash replace credit cards? What do you think? http://www.foxbusiness.com/story/markets/industries/finance/cash-king-need-credit-cards/

Sometimes I hear people say, “What incentives are there for kids to save? Financial institutions pay very little interest on deposit, so why should kids save?”

Most times, these comments come from folks who remember the early 80’s – when banks paid 16% on CD rates. However, they forget that the prime rate was in the same rate area and banks could not offer traditional loan products (mortgage, car loans, etc.) at rates higher than what they had to pay in deposits. The “spread” is how banks used to make money – money they used to pay operational expenses and invest in new technologies.


How about this as an idea? Let’s make a distinction between investing and saving. If you want to park your money somewhere where it will grow and provide you a decent return, then invest it in the various options available to us today. Your investment strategy will dictate your return and how much your money grows.


Let’s define savings as a means to manage spending. In other words, don’t buy stuff until you have the money for it. What an old-school thought! Put money aside for reserves (it used to be called a rainy day) and then set aside money for the things you have your sights on. Take a peek at this video clip – you’ll see what I mean…