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The giant pool of money


Why saying “That’s my money you’re spending” doesn’t make sense

I discuss money a lot. Sometimes it’s discussing my own money that I’ve earned/borrowed/received; sometimes it’s discussing money under my control as Treasurer of North by Northwestern; sometimes, it’s discussing money that neither mine nor under my control.

At the current stage of my life, it’s usually about this university I attend, and its US$9.648 billion endowment and its total $2.03 billion expenditures last year.

Because whenever there’s a capital expenditure (read: construction of new buildings and facilities), the usual response of students is to say: “my tuition dollars paid for that.”

Well…


As any aspiring business student who has taken Intro to Accounting will probably tell you, the General Fund is an accounting term used to describe, well, the general fund.

(I’m simplifying to communicate a point. Bear with me, please, business students. You’re going to do great work.)

It’s an idea that’s usually only used in government and nonprofit accounting, because money given to these organizations can and sometimes do come with strings attached earmarking them for specific purchases and services.

(General-purpose for-profit corporations, which usually are businesses, don’t have to make this kind of accounting distinction. They can spend money however their directors feel. As a result, they don’t usually have anything but a general fund, and this kind of fund accounting doesn’t apply.)

The general fund is kind of a lump pool of all money that isn’t set aside for a specific purpose. When you give money to one of these organizations—in the form of taxes, fees, tuition, fines, whatever — unless the transfer from you to the organization came with specific caveats, your money generally gets dumped into the general fund.

Alternately, if you make a donation to the university’s library and specify it should be used to purchase pre-colonial United States documents, then it’s likely going to end up in a fund specifically for library purchases of pre-colonial United States documents. (This might seem far-fetched, but you could apply this principle in the form of scholarship funding and financial assistance for college students. And a lot of people do.)

In practice, this cash — general-purpose or not — gets lumped together and deposited into a single bank account, because having more money in an account generally means you get a higher interest rate.

But in the organization’s accounting department, the cash earmarked for your pre-colonial library collection might as well be kept in your long-lost Great Uncle George’s secret underpants drawer, because there’s no way that it’s going to be spent unless some obscure 1700s parchment turns up for auction.

However, money in the general fund can be spent for whatever and whenever, as long as it’s there. And it does get spent, a lot of the time.

This is why it’s so difficult to track down your money flows once it’s in an organization, and where it’s being spent. Even with the most sophisticated of all accounting tools, it’s just not possible to say this dollar belonged to Jackie, this dollar belonged to Jose, and this dollar belonged to Joon.

It would be analogous to thousands of people filling a swimming pool with one cup of water each, then taking out a cup of water and saying “Whose water is this?”

You could divide up that volume of water proportionally to how much everyone put into the pool, in which case each person owns a tiny fraction of that cup. Or, you could assign the entire volume of water as one person’s contribution, and then exclude them from having ownership for any other cup of water you later extract from the pool.

Both are equally valid, because both are equally nonsensical.

The only way you could sensibly say “This cup of water is Jordan’s cup of water” is if you kept the water from Jordan’s cup in the side kiddie pool — and congratulations, you’ve just discovered the basis of fund accounting.

By Leo Ji

software engineer and news nerd