The tricks your mind plays on you before sunrise…
I was out with the dog walking around town when on the ground I spotted a flash of light. I got closer, and it was a nice shiny quarter. One of those State Quarters we have these days from Georgia with a picture of a peach on the back of it. I still think it looks like a butt, but then again I’ve been through Georgia and there’s a certain amount of truth to that.
Snide comments aside, I looked at it and wondered just how much change would have to be on the ground before someone would bend down to pick it up. Excluding the extreme cases like people with mobility problems, or kids who will pick up everything, I realized that there’s a certain wealth floor.
Pennies are pretty much worthless these days. The Canadians are going to “cancel the penny” like many other nations. We’ve inflated the Penny into uselessness. It costs the Canadian Mint 1.6 cents to make a Canadian Penny.
The US Penny is similar, and now it isn’t even copper. It’s a zinc slug that is wrapped in copper foil and has been since the early 1980s.
If you see penny candy these days, it is usually a nickel or more. Gas went up by a factor of 10 since the good old days of before the first Oil Shock of 1973.
Having an active mind, I wondered just exactly what that shiny new quarter was worth back then. In other words, lets journey back in time to just before the Oil Shock and figure out how much you would pick up on the ground to have the same amount of purchasing power.
Yeah, another exercise in Pedantic Math, right? Someone has been playing with the Consumer Price Index calculator again. You can too, since here are two different links.
Basically what it tells you is that since 1973, the year the economy changed for good, the prices have increased by a factor of 5. A Nickel in 1973 is what a Quarter in 2012 is worth now.
Kind of sad isn’t it?
If you look at the flip side of that, if you invested that Nickel in a bond in 1973 how much would it be worth today?
Oddly enough it would be worth more than the quarter.
I found a “Future Value” Calculator. “Back Then” in 1973, a good rate of interest would have been 5 percent. In other words, I’m saying that for a rule of thumb you would have been able to shop around for a 5 percent return on your investment for a long term. In 1973, the prime rate for borrowers was 6.25 percent so that isn’t out of the question.
Ok so you go and buy a long term bond that pays 5 percent per year for 39 years from that point. At the end of that time, a 100 dollar bond would be worth 670.48.
I used this Future Value Calculator.
Back in 1973, if you put that $.05 in the bank at 5 percent interest you would be the proud owner of $.34.
Keep in mind, longer terms of investment tend to have lower interest rates, so more likely a 4 percent loand would have only returned $.23.
So what is the moral of the story? Invest if you really have spare change and the interest rate is higher than you expect to have taken away by inflation. Otherwise keep it in your pocket and spend it instead of littering the ground with Zinc Slugs called pennies.
They’re just going to print more money anyway and it’s all losing value due to that or incompetent management.