Part 4 of 5: From Emotionality to Intentionality: Calm in a Costly World
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Inspired by Justin Wolfers' Platypus Economics article, A User's Guide to Living With Inflation.
Quick Recap:
In part 1 of Emotionality to Intentionality: Calm in a Costly World, I explained why it is common for people to impulsively react before translating income and expenses into real terms.
In part 2, I explored how to better connect to and consider our future-self, which lives in a different economic world than our present-self.
In part 3, I discussed what could be getting in the way of adjusting our spending, even now when we are hyper-aware that inflation is putting more pressure on our household budget.
Now for part 4…
Have you ever wondered why hiding money under a mattress is a commonly referenced financial cliché? Maybe you’ve seen it in a movie, a crime drama series, or even witnessed your grandparents stashing cash away for a “rainy day.”
There’s a reason why this habit has endured. Keeping idle cash on hand can feel psychologically comforting, even though it’s financially limiting.
Here is Professor Wolfers’ idea #4 from A User’s Guide to Living With Inflation, followed by my insight from a financial therapist’s lens.
✨ Idea #4: Hold less idle cash
“Inflation taxes money that sits still. The dollars in your wallet are getting smaller each minute they sit there. So don’t leave them there.”
Inflation is often referred to as a “hidden tax,” a concept in macroeconomics popularized by Nobel Laureate economist Milton Friedman.
“As I have repeatedly said, inflation is a form of taxation without representation. It is the kind of tax that can be imposed without being legislated by the authorities and without having to employ additional tax collectors.” -Milton Friedman
Strictly speaking, inflation is not a tax in a form familiar to us because it isn’t a required payment collected by the government. However, inflation acts just like a tax by reducing our wealth and reducing the real value of our money. A dollar bill that sits under your mattress for a year still looks like the same dollar bill, but its value declined quietly because of inflation.
So, what makes inflation “hidden?”
It reduces your purchasing power without action by you or anyone else. There’s no notification, no bill in the mail, no visible line item on a receipt like sales tax, and no tax collector. You don’t really see it happening until your monthly budget no longer stretches as far as it used to.
Increases in inflation are hidden, unlike other tax increases.
If you’re property taxes increase, you receive notice in the mail. If the sales tax increases, you see it on receipts.
When inflation increases you receive no notice. Well, maybe if you’re reading economic reports or listening to financial news, you’ll hear about it.
Instead you notice it gradually, your grocery bill increases for the exact same items you purchased last year. Your insurance premiums go up. Healthcare becomes more expensive. Your streaming subscriptions go up in monthly cost. Small increases here and there that creep into your budget.
Each individual price increase feels manageable, but over time they compound into a meaningful reduction in what your paycheck can buy. It’s a lot like the boiling frog analogy I mentioned in last week’s article. Each small change seems insignificant on its own, but as they accumulate over time, the overall impact becomes difficult to ignore.
Why It Feels Good To Keep Cash
There’s something undeniably comforting and fulfilling about seeing a large amount of money sitting in your checking account or a tall stack of cash sitting in your closet safe. Money represents security, choices, freedom, and flexibility. You feel prepared for whatever life brings your way. Especially in uncertain times (kind of like now), holding onto cash can feel like a safe, smart financial decision.
Physical cash feels immune to market crashes and economic volatility. It also activates a deep, primitive sense of safety and control that digital numbers on a screen just can’t replicate. And cash provides privacy. Freedom from institutional surveillance, hacking risks, or banking fees.
In the 2009 peer-reviewed research article titled "The Symbolic Power of Money: Reminders of Money Alter Social Distress and Physical Pain", published in the journal Psychological Science, a collection of six empirical studies suggests that handling physical cash or just thinking about money can make people feel more capable of handling discomfort on their own.
Out of the six distinct experiments conducted in China, Experiments 3 and 4 dealt directly with handling physical cash. The findings suggest that the act of handling cash acted as a psychological buffer against emotional and physical distress, likely because it symbolizes security and self-sufficiency.
In Experiment 3, participants physically counted out eighty ¥100 bills from a stack before playing a game designed to induce social exclusion.
The experiment demonstrated how handling cash serves as an alternative social resource if one is not able to rely on social inclusion to feel secure. Simply holding cash can activate a feeling of inner strength and self-sufficiency, which protects the mind against the pain of social rejection.
One could deduce that cash on hand affords people the ability to work the social system to get what they want, regardless of whether they are socially accepted.
In Experiment 4, participants completed the exact same cash-counting task before immersing their fingers in hot water to measure physical pain tolerance.
The experiment demonstrated that in the high-pain condition of immersion in 50℃ / 122℉ hot water, participants who counted money reported significantly lower pain ratings than those who counted plain paper.
Now, while there are benefits to keeping cash on hand such as emergency preparedness, liquidity, and peace of mind, holding too much of it for too long comes at a cost.
The Math
Whether sitting under your mattress or a non-interest bearing checking account, your cash’s value shrinks as time passes. When the prices for goods and services goes up, every dollar you are keeping on hand declines in real value.
While holding cash may provide a sense of security and convenient accessibility, inflation erodes its value.
To visualize this, the graph below shows the impact of a sustained 3% annual inflation rate on a $10,000 cash stash over 20 years:
Year 0: $10,000 (Full purchasing power)
Year 1: $9,709 (about $291 in purchasing power lost)
Year 5: $8,626 (about $1,374 lost)
Year 10: $7,441 (about $2,559 lost)
Year 20: $5,537 (about $4,463 lost—over 44% of your purchasing power)
On top of the loss of purchasing power, there are also:
Missed Growth Opportunities: Keeping money static means missing out on compound interest from bonds or dividends and also on the increased value of stocks, or other investments that actively grow your wealth.
Zero Protections: Cash has no fraud safety. If it is lost to theft, fire, or natural disaster, it can’t be recovered.
Final Thoughts
As with so much in life, it’s all about balance.
Finding the right balance between maintaining financial security and peace of mind while putting your money to work is key to preserving your long-term financial well-being.
One of Professor Wolfers suggestions is to get in the habit of moving excess balances from your checking account into savings if your checking account pays little or no interest.
While keeping money in a high-yield liquid account means giving up complete financial anonymity, it still allows you to preserve liquidity, benefit from legal protections, and earn a return on your cash.
If you’ve made it this far, thank you for reading!!!
I hope today you’re met with kindness, especially from yourself.
💚💚💚
References
Friedman, M. (1974). Inflation, taxation, indexation. In Inflation: Causes, consequences, cures (IEA Readings No. 14, pp. 71–88). Institute of Economic Affairs. https://miltonfriedman.hoover.org/internal/media/dispatcher/214978/full
Jacobson, K. (2026, July 29). Part 3 of 5: From Emotionality to Intentionality: Calm in a Costly world. Your Money Counselor. https://yourmoneycounselor.substack.com/p/part-3-of-5-from-emotionality-to
Wolfers, J. (2026, July 1). A user’s guide to living with inflation. Platypus Economics. https://newsletter.platypuseconomics.com/p/a-users-guide-to-living-with-inflation
Zhou, X., Vohs, K. D., Baumeister, R. F., Department of Psychology, Sun Yat-Sen University, Marketing Department, Carlson School of Management, University of Minnesota, Minneapolis, & Department of Psychology, Florida State University. (2009). The symbolic power of money: reminders of money alter social distress and physical pain. Psychological Science, 20(6), 700. http://assets.csom.umn.edu/assets/127771.pdf