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What is the exchange rate of time?



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What would Keynes do?
Tejvan Pettinger
Esseen arvioitu lukuaika on 5 minuuttia.

What is the exchange rate of time?

 

Thought experiment: Take off.

Is money the only currency? How is it possible that with saving money, you end up with less money? Have you ever wondered about how much does your time cost? We are about to find the answers to these questions.

Let’s embark on a journey to an alternative universe where the euros on the price tags magically transform into the currency of time. By going to the movies, you could see the price of the ticket in terms of how much time does it costs for you. To give an example, volunteer organizations work exactly the same, they provide accommodation and food in exchange for your time. In this universe, a bar of chocolate which is 5 euros would cost you 10 minutes of your life.

 

Is money the only currency?

To answer this question we have to start from the basics and build up the argument from there. How can we define currency? The most common definition is that currency is a medium of exchange for goods and services. While this is true we often think about currency as money. In that case, we have to ask the question: how do you get money? If the original definition is correct, we can safely say we buy money at the cost of our time and energy. This way time becomes a currency too. Why is it important? Imagine that you are working for a well-established company with an 18 euros/ hour salary. One day you decide that you are going to call in sick and instead of working you are going to the movies with your friends. You spend 10 euros on a ticket and 8 euros on popcorn. You spent 18 euros in total, right? No. You spent 18 euros plus the 2 hours you were there. If you had worked during those hours you could earn 36 euros. In total, you spent 3 times the original price, 54 euros. This phenomenon is called opportunity cost.

We can also turn it around and I will stick with the cinema example. The next day you decide to see another movie. You buy the popcorn and the ticket at the same price. You made yourself comfortable and the movie starts, your eyes are gazing at the screen, and all of a sudden you let out a big sigh. This movie is extremely boring. This is not what you paid for. What do you do? Would you pay for a bad experience? Believe it or not, most people do and stay till the end because they „already paid for the ticket”.

However, a true economist thinks about choices in terms of costs and benefits. Every choice has value and when you choose a bad movie you are saying you value this over the other option for example being home with your kids. Opportunity cost is the value of the lost opportunity.

 

How is it possible that with saving money, you end up with less money?

In today’s world, we try to save as much money as we possibly can but rarely stop and think about its cost. I believe there are different ways to acquire wealth. You can say that you want to save up as much money as you can by sacrificing your temporary happiness. Not going to the movies, not traveling but working extra hours. At the age of 50, you might be able to retire and got to experience the world and its temporary beauties or you can say you want to build systems to work for you in the future. A system like this is a business with employees where the work is outsourced. Another system like this is investing, instead of outsourcing the work to people, you outsource it to your money. Of course, both of them are risky because you have to invest a lot of your time to learn about these things in the beginning and if you missed something important, you may not get anything in return.

When I was younger, before going to school I always got 2 euros from my father to spend it on sandwiches. One sandwich cost one euro. I was in school from 6 am to 4 pm and we had lunch in between. After I ate a sandwich and had lunch at 12 I had to make a decision. Should I wait for 5 when I get home and save one euro or should I eat the second sandwich? Almost always I stuck with saving up my precious one euro and go home a bit hungry. This was until an accident happened. I broke my friend’s glasses accidentally and I had to pay the price. Until that point, I had saved up so many euros one by one. After the accident, I still remember pouring it out from my piggy bank. I was extremely sad since the money wasn’t even enough, my parents had to help me and I lost all the euros I saved up during multiple years. This was one of the greatest lessons of my childhood. After this accident, I started working and looking at money differently. I helped my neighbors with gardening and started cleaning houses for compensation. I made sandwiches for school and little by little got more curious about investing. Nowadays I know if I leave my money just to sit in the bank, then it will constantly lose its value due to inflation and a big crash can happen anytime just like in 2008. I think it’s risky to NOT take (calculated) risks in terms of money and not the other way around. Let’s be honest, if money loses its value you either have to have other assets that you can pay with like gold, houses, stocks or you are going to go back to the good old days and pay with your time.

 

Have you ever wondered about how much does your time cost?

According to Business Insider Bill Gates makes around 1300 dollars or 1120 euros in a second. If he drops 1000 euros it wouldn’t be worth picking up because it would cost him approximately 2 seconds which is 2240 euros. Okay, but Bill Gates wasn’t always a billionaire…How about when he was young? When he sat in a small garage making 0 dollars with Microsoft, his time worth the same or even worth more since that was the most important phase in his company’s life. If he would have spent that time partying, we might not have Microsoft today and his time would also cost less. In my theory, every person has a „time cost” potential. It’s an exponential curve and this potential is determined and constantly changing by the decisions we make daily.

 

Thought experiment: Arrival.

Let’s go back to our alternative universe and add opportunity cost to those price tags. You are walking down the aisle, you see a bar of chocolate which costs 10 minutes of your life or 5 euros. You see a stuffed animal with very precise details on it costing 1 hour converted to 30 euros. You come across a shiny object, it’s a mirror and you can see yourself in its reflection. You have approximately 80 years, how much do you think your time costs?

 

Reference list:

Pettinger, T. (2018). What would Keynes do?

 

Warren, K. (2021). 11 mind-blowing facts that show just how wealthy Bill Gates really is. Business Insider

https://www.businessinsider.com/how-rich-is-bill-gates-net-worth-mind-blowing-facts-2019-5?r=US&IR=T

 

Frankenfield, J. (2020). Currency. Investopedia.

https://www.investopedia.com/terms/c/currency.asp

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