The Motley Fool: The Fribble, A Penny Saved is a Penny Wasted, by George Runkle

September 11, 1995

A Penny Saved is a Penny Wasted
by George Runkle

Early in my tender youth, I began to earn money mowing lawns. I was 13 at the time, and made a princely sum of $8 a week. Mom and Dad insisted that I save that money for college. "Put it in the bank," they said, "it earns INTEREST!"

Well, I did just that. Every week I rode my bike up to Montgomery Mall and put the money in the bank. Then, one week, the bank posted interest in my little passbook. Hey, a whole ten cents! My parents were ecstatic. "See!" they exclaimed, "you made money by having it just sit in the bank!" Yeah, right -- I could have made ten cents by checking the coin returns in the phone booths. Meanwhile, I gave up seeing movies, buying ice cream, or doing anything else fun with my money. College, to me, was as far away as the end of the world, so a few years later, much to my parents' chagrin, I took the money out of the bank and bought photography equipment. At least it DID something. And I figured I could get a scholarship and a student job to pay for college.

Now, I'm pushing 40, and fortunately I'm making more than $8 a week. My parents have passed on, but if they were here, they'd be telling me "save your money for retirement, buy CDs, you'll get INTEREST!" In Mom and Dad's version, I should put my hard-earned money away for a miserable five percent or so a year. Meanwhile, I'd give up all those things I want, like a new car, a stereo, and trips to Europe. But of course, retirement IS coming. And this time, Mom and Dad won't be around to bail me out. What do I do?

Easy, I invest! I buy stocks. Stocks are fun! Every day Micron Technology does something interesting in the market, and Microsoft is a whole drama unto itself. As for CDs -- they don't talk about CDs on CNBC. CDs don't come out with new products, hand out press releases, and people don't make big bucks making stupid predictions about them. When I put my money in the stock market using Foolish principles, it gives me a return on my investment that's meaningful.

In short, investing is not saving to me; it's another way of spending. Saving is for people who used to remind your fifth grade teacher she forgot to assign homework. They're the people who never skipped class in high school, never partied in college, and never quit a boring job. They're always giving up for later. It's just as well, because their retirement is likely to be as boring as their earlier lives were, because they won't have enough money to do anything. The interest that Treasury Bills have earned since 1927, according to Peter Lynch in his book One up on Wall Street, averages 3.4% yearly. Stocks in the same period averaged 9.8%. Worse yet for our thrifty T-Bill savers, inflation averaged 3%, so they only earned .4% return on their money after inflation. Holders of passbook savings or CDs did even worse. No wonder so many thrifty people spend their old age playing checkers. They can't afford anything else.

Isn't it ironic? Those of us who invest, and have fun doing it, will likely do better than those who listened to their parents and saved. I still don't have a new car (the one I drive has over 196,000 miles on it), but by God, that's hundreds more every month that I can put into stocks. Well, I guess I am giving up some things, but you have to if you want to have fun investing.

Mom and Dad might cringe, but I think what I've learned gives new meaning to the term, "Penny wise and pound Foolish."

[Editors note: George Runkle is a full-time Major in the Pennsylvania Air National Guard and works as a Base Civil Engineer at the 171st Air Refueling Wing in Pittsburgh. He's written numerous articles on computing and civil engineering, and is currently pursuing an MBA from Robert Morris College.]