For generations people have hoarded cash in times of economic uncertainty.
For some that has meant hoarding cash in their bank accounts, while others have taken the more literal route and have stashed bank notes under their mattresses or in shoe boxes.
Why do people hoard cash?
It’s about feeling safe and prepared. The cash is there for a rainy day. It’s there in case Wall Street collapses. It’s the simplest and easiest way to feel secure at a time when you think bad things are looming on the horizon.
How much do people stash away?
Well, here are some news items relating to the theft of cash from people’s homes:
“Someone stole a metal lock box containing $12,000 in cash from a home on Hanover Road in Jackson Township, Northern York County Regional Police reported.”
“A Salem Street resident reported $30,000 in cash was stolen from her home.”
“$14,000 on U.S. currency and $4,000 in assorted rings were stolen from a Vie Ridge Drive in Old Topanga.”
“A residential burglary — not a bank robbery — netted criminals $31,000 in cash.”
Yes, keeping cash at home does expose you to the risk of theft. And you can see that these people were holding onto substantial amounts of cash – from between $12,000 and $31,000.
But putting aside the risk of losing it all to a thief, there is a larger danger lurking in the shadows.
Inflation erodes the value of your cash at a steady rate. Even with a modest inflation rate of 5% a year, it won’t take long for your cash to lose a lot of its value. If inflation rises to 10%, a $12,000 pile of cash will lose $1,200 in value in just 12 months.
Put simply, the value of your cash declines in line with the falling purchasing value of the U.S. dollar.
Take a look at this chart, from the Bureau of Labor Statistics.
As you can see, the purchasing power of the dollar has been falling for a very long time.
Meanwhile, over the last 10 years the value of gold has been rising consistently.
You get the idea, right? If you are holding cash, you would do better to convert it into gold, as soon as you can. By all means keep a small amount of emergency cash in hand, but use the bulk of it to buy gold.