Ch. 24
Section 1
What is Money?
Money

1.
Money has three functions in our society:
Medium of exchange
we can trade money for goods and services; without it we
would have to barter (goods for other goods)
2.
Store of Value
we can hold our wealth in the form of money until we are
ready to use it
3.
Measure of Value
acts as a measuring stick that can be used to assign value to a
good/service
Money (cont.)

Anything that people will accept in exchange for goods can serve
as money.

Throughout history, civilizations have used salt, animal pelts,
precious stones/metals, tobacco, beads, as a medium of
exchange

We accept coins, metallic forms of money and currency, both
coins and paper money

Checking and savings accounts are also considered forms of
money
Money (cont.)

We value and accept money because know with
confidence that someone will accept its value or worth.

If not for this confidence, we would not accept it as
payment

Money by itself has no other value. The material used
to make coins and paper are worth less than the value
of the items as currency
The Financial System

Like we mentioned previously in Chapter 24, money saved at a
financial institution does not stay there.

It has to circulate if you want it to grow.

The banks lend your deposits, the interest charged on the loan
pays for operating expenses and earns profits for the bank.

All financial institutions are meant to bring savers and borrowers
together.
Financial Institutions

Commercial Banks – financial institutions which offer
full banking services to individuals and businesses;
Most people have their checking and savings accounts
in these banks.

Large amount of influence in our economy because of
sheer number of people and businesses using them.
Financial Institutions (cont.)

Savings and Loan associations (S&Ls)
financial institutions that traditionally loaned money to people
who wanted to buy homes; take deposits and offer savings
accounts

In the 1970’s worked off the unofficial “3-6-3” business model.

Take peoples deposits and offer them 3% on it
Lend to individuals/businesses and charge 6%
Make so much money this way, quit the day early and make your
tee time at 3pm


Financial Institutions (cont.)

Credit Unions – work on a not-for-profit basis (non profit
organization). These banks which are sponsored by large
businesses, labor unions, or government institutions, are open
only for its members; only workers of the sponsor may use the
credit union

Usually pay higher dividends on deposits and charge lower
interest rates on loans for their members

Some of the largest Credit Unions in the U.S.
- N.C. state employees credit union
- Boeing employees
- Orange Co. Teachers Federal credit union (CA)
Safeguarding Our Financial
Institutions

The safety of our banks and the confidence of depositors stems
from two things: Regulation and Insurance

Banks have to follow the rules and be accountable for their
practices under federal guidelines; this lowers the chance that a
bank will make risky loans.

The FDIC insures individual accounts in banks. If the bank
fails, the FDIC will return to depositors the amount of the
deposit up to a maximum of $100,000.

Created after the stock market crash of 1929 and the resulting
bank collapses that wiped out people’s savings