Hiding money under the mattress might seem like a safe and frugal option, but economists highlight that this approach can lead to significant long-term financial losses. This is where the concept of opportunity cost comes into play.
Opportunity cost refers to the potential benefits that you forgo when you choose one option over another. In the case of stashing cash at home, the money you keep under your mattress is not working for you. Instead of growing through investments or earning interest in a savings account, that cash is essentially stagnant.
For example, if you stored $1,000 under your mattress instead of depositing it in a savings account with an annual interest rate of 2%, after one year, you would have lost out on $20 in interest. Over time, this loss compounds, leading to an even greater opportunity cost, especially when considering inflation. If inflation rises at, say, 3% per year, the purchasing power of your $1,000 effectively decreases, meaning that money will buy you less in the future.
In summary, rather than simply focusing on saving cash, it’s important to consider how best to use that money to generate returns. Keeping it under your mattress might feel safe, but it ultimately costs you in lost opportunities and diminished value over time.