Copyright © 2009–2011 National Academy Foundation. All rights reserved. Unit 2, Lesson 4 The Function of Money AOF Principles of Finance

Money is so common that we rarely think about what it is Money is any medium that is generally accepted as payment for goods and services. Money is used to get the things we need and want. The characteristics of money include: durability, divisibility, portability, and scarcity. What would it be like to live in a world without money?

Money facilitates the direct exchange of goods and services Before money was around, people used to barter to obtain the goods and services that they needed. People traded jewelry, shells, livestock, stones, tools, and much more. Bartering wasn’t very efficient or convenient. Bartering requires a “double coincidence of wants”—a rare occurrence. Describe a time when you bartered with someone for something that you wanted.

People use money when any good or service is purchased. Money ensures the successful exchange of one item for another. Money serves as a way for people to get goods and services they do not produce with ease. How does using money as a medium of exchange simplify your life today? Money enables us to easily trade goods and services

Money is a way to hold wealth Money is a store of value and can be used to store wealth. You can store the value of the goods and services you produce. You can save the value of what you make today to purchase items in the future. Land, stocks, bonds, and jewelry are just some of the ways that people hold wealth. What are some of the advantages and disadvantages of storing wealth as stocks, bonds, and/or real estate?

Money is a standard unit of measurement Money is a unit of account. The price of all the other commodities are measured in terms of money. Money allows you to compare goods and services by a common attribute. Items become valued in terms of dollars or portions of a dollar.

Money simplifies trade If used appropriately, money can make life easier. Money serves a specific purpose in society. Money is a necessity and is required for survival. Money should be managed and used responsibly.