Money is Fungible & Why That Matters

There can be a good reason to be particular about what money gets spent on what, but failing to recognize the fungibility of money can lead to silly decisions and assumptions that can unnecessarily limit how we invest and spend.

I hope to give you a better understanding of what people mean when they say that money is fungible and why it’s important to understand the concept.

Tax Credit Money Spent On Drugs?

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A well-known politician recently commented on addiction while ignoring the fungibility of money. According to reports, the Senator from opioid-addled West Virginia expressed his concern that the child tax credit dollars could be used by some parents to buy illicit drugs.

I hate to be the bearer of obvious news, but in a situation where something like 95% of parents with kids under the age 17 will receive some child tax credit dollars, basically anything that money can buy, including sex, drugs, and rock-n-roll has been and will continue to be paid for with child tax credit dollars. And stimulus money. And tax refunds, electric vehicle credits, paychecks, gift cards, and on and on.

Now, can it be shown that these specific dollars are being used on particular vices? Maybe, maybe not, and it doesn’t much matter, in my opinion. Since money is fungible, if you give people some money and money is spent by some of them on untoward activities, you can easily make a connection between the two.

That said, these unsavory things happen with or without these programs, and it’s best to focus on prevention, dealing directly with the problem you’re trying to solve. Ascribing particular dollars to specific activities doesn’t give us any new information. After all, money is fungible.

Let’s say you can live off of 4% of your portfolio, and all of your retirement money is accessible. Would you rather a) receive a 4% dividend and get an additonal 4% in portfolio growth (capital appreciation or b) get 8 % in portfolio growth but have to sell 4% of your shares annually to get by?

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