We just got back from a trip to Disney with Lil’ Fox and Mini Fox. As an aside, Disney World is a pretty amazing place and I highly recommend it to anyone.
While we were on the trip, I was thinking about similar trips my dad took with me and trips his parents took with him. Because I always think about finance and money, it got me thinking how people paid for those trips—not necessarily how they saved for the trips (which is, of course, an important thing), but how they actually paid money at the point of sale.
Money seems like a real constant in our lives for decades and centuries and millennia. However, it’s hard to think of something so central to our lives that has changed so drastically over such a short period of time. In the past 100 years it has changed more than food or clothes or shelter.
Things used to be really risky and inconvenient
Back in the day, let’s say when my dad was a cub in the 1950s, everything was paid in for in cash. There were innovations like Traveler’s Checks that substituted for cash, and I imagine many people thought of those the way today many people think of Bitcoin—kind of confusing and you aren’t really sure you “get it”. It was just easier to use cash, something they understood and were used to.
Pretty much all of life revolved around having a ton of cash on hand to conduct your life- -groceries, gas, vacations, washing machines, everything. That was hugely inconvenient and also incredibly risky. I remember my grandfather taking about his money belt and false wallet, both tools meant to counteract enterprising pickpockets.
A couple decades later, let’s say the 1970s, charge cards hit the scene, first for department stores and gas stations. Those could only be used at a specific store (your Sears card could only be used at Sears), so that wasn’t super convenient, but it was a major improvement.
In the 1980s, credit cards as we know them today became widespread. Credit cards cousin, debit cards, which act in pretty much the same way but deduct straight from your checking account, were being used broadly by the 1990s. Even though that’s where we are today, even credit cards have evolved in a major way.
The modern art of buying
Today the vast majority of retail transactions are done with credit cards, but the credit card you’re using is very different from the one my dad used in 1983. Probably the biggest difference is that nearly every credit card offers a pretty substantial bonus of some sort. It can be airline miles or hotel points or cash. This can be a pretty big deal.
The Fox family plays credit card roulette (we get a new credit card every few months to take advantage of their initial purchase bonuses) and that nets us about $2,500 each year. That just paid for our vacation.
All that said, we are very far from the cutting edge when it comes to this stuff. In the mid-2000s this crazy thing called “Paypal” hit the scene. When I was in grad school the cooler kids were using Paypal and paying each other for stuff. I didn’t fully get it, and I admit that I don’t use it today. Nonetheless peer-to-peer pay networks were here.
Fast-forward a few years and you got digital currencies like Bitcoin. As much as I don’t fully understand Paypal, I understand Bitcoin even less. What I do know is that Paypal was based on US dollars but offered a different and more convenient way to pay. Now it seems Bitcoin is based on its own currency and then also offers a different and more convenient way to pay.
Add on to that, if you like a bit more risk in your investing portfolio, Bitcoins themselves, beyond just the ability to pay for stuff, can go up or down in value so it that way it looks like an investment (or gamble). One Bitcoin was worth $1000 at the start of the year and now is worth about $7000. Crazy.
What it all means?
For finance and history nerds like me, I think this is a really fascinating study. I have always said that inflation is way overstated and I think we can find one of the reasons here. Think about how much easier and faster things are for businesses now with credit cards and other electronic financing compared to the cash economy of my grandfather’s time. That impacts nearly everything so the stakes are high. That savings gets passed on to the consumer, and we get lower inflation. Score.
Second, today, there’s a huge upside to using money innovations like credit card rewards. It can pay for our Disney vacation every real. That just became real.
If credit card rewards can do that for me today, and I admit I’m a late adopter when it comes to this stuff, what is the upside still out there. Are there similar dollars provided by the Paypals and Bitcoins of the world that I just don’t understand enough yet to pick up off the ground? Probably.
Are there going to be further money innovations in the future that will provide even more dollars? Certainly. I don’t know what they are in a similar way my dad in 1983 could never have imagined Paypal or Bitcoin, but they’ll certainly be there. If today I’m basically getting a vacation for free, who knows what money innovations will bring me over the next few years.
Maybe that should motivate me to figure out this crazy, newfangled Paypal and Bitcoin things.