While at the neighborhood park last weekend, Jackson saw another boy playing with a toy rocket. And for context, rockets are one of his favorite things right now.

So of course, as soon as he saw it, he ran over to investigate.

Shortly after, Jackson told me, “I want it…”

Followed by, “I need it!”

And predictably, “can we buy it?”

In my attempt to teach Jackson that money makes the world go around (lesson 1), I remind him that if he wants a toy, we’ll first need to find it for sale at a store. Then, we will need to pay for it…which requires money.

And on cue, Jackson will then reach into his pockets (even if his pants don’t have pockets…) to give me some “money”.

Right now, in Jackson’s toddler brain, “money” can be anything – twigs, leaves, or whatever he is holding in his hand at the moment. Of course, he doesn’t yet understand why some things, like leaves, will NEVER be money.

And that’s what I want to talk about today.

Intuitively, you and I know that leaves will never be money. But at the same time, have you ever thought about why?

My observation is that 99.9% of us haven’t given any thought about what makes some money be good while other money is bad.

And yet, it’s vital to understand.

Why should you care?

Previously, in lesson 1, we established that money makes the world go around. Simply put, we need money in order to trade for products (like diapers or toy rockets) and services (like doctors visits).

If you agree with this simple framework, then the next logical question to ask is, “am I using good or bad quality money?”

Why? Because if you are using bad quality money, it means you are taking risks with your family’s financial future. And that is a bad thing.

What kind of risks? Here is an example.

Imagine on pay day, your boss thanks you for the good work and gives you a bag of leaves instead of your normal paycheck. And imagine, you decide to accept that bag of leaves as compensation.

The risk is, when you go to buy groceries, or diapers, or to pay a bill, you are going to be in for a rude surprise when other people won’t trade you products / services for that bag of leaves.

Yes, this is hyperbole, but the point I’m trying to make is that not all money is good. Some are bad. And as parents, we need to be able to distinguish between the two.

Not all money is created equal

First things first. “Good money” and “bad money” are relative terms. “Good” is only good when compared to something…not as good (ie. bad).

Now, zooming out, if you are lucky enough you live in the United States and / or get paid in US Dollars…congratulations, you are using (relatively) “good money”!

On the other end of the spectrum is “bad money”. An example would be the Argentinean Peso. (I’ll explain why shortly)

And then of course, there are a long list of things that are so bad at being money, like leaves, that it will never make the cut.

Now that we’re on the same page that there is a spectrum, let me explain what makes some money good, others bad, and some so bad that no one will accept it.

Good money vs. bad money

Here is a straight forward way to understand good vs. bad money.

Let’s say today, 100 units of “money” can roughly buy one month worth of diapers. But imagine right now, you already have a box of diapers at home and don’t have space to store more.

What would you do? As a parent, it’s simple – I would save that money for now (knowing that next month, I will need to buy more diapers).

Now here is where good money or bad money comes into play:

• If I am using a good money, then in the future, that same 100 units would still roughly buy one month worth of diapers
• If I am using a bad money, in the future, that 100 units of money would not be able to buy one month worth of diapers anymore

In Argentina, the money used to be of good quality. But now, it is bad quality (source).

That means in Argentina, if you earn and save 100 units of money today (that can buy a month worth of diapers today), by next month, that same box of diapers now costs 150 units (ie. 50 more than the previous month).

As a parent, I hope you can see how bad money comes with risks.

Specifically, it would mean that next month, you would have to work harder (ie. overtime, second job) to make 50 more units of money…just to buy the same box of diapers that costs 100 units today).

Else, you might find that you can no longer afford the diapers you need..

Getting paid in good money

As parents, we work and make money. We then spend some of the money right away (to buy products and services) and save some of it too (to buy products and services we need later).

But we need to make sure the money saved (to be used in the future) will still be able to buy roughly the same amount of stuff as it can today.

Otherwise, the whole concept of “saving for a rainy day” breaks down. And that would bring big issues for us, as parents, to weather a financial storm such as a last second doctors visit, a “check engine” light appearing in the car, or any other unexpected expense that can and will pop up.

Again, if you earn and save in US Dollars, relatively, you are using good money. As an aside, outside of the United States, it is why so many people also save using the US Dollar vs. their local form of money (ie. Argentinean Pesos, Lebanese Pound, etc).

What does this have to do with bitcoin?

If you’ve read this far, congrats! You are ahead of 90% of parents and well on your way to understanding bitcoin.

As a recap:

1. Money makes the world go around
2. Not all money is equal (ie. there are good and bad kinds of money)

And even though I haven’t directly talked about bitcoin yet, these two foundational concepts will help you see exactly how and where bitcoin fits in. I promise!

But first, we have to get on the same page about one last thing…what happens to bad quality money?

Let’s cover that next! You can read lesson 3 here.