Money and Banks

What is money? Economists say: Throughout history: Money is anything people are willing to accept in exchange for goods or services. Throughout history: Salt, animal hides, gems, and tobacco have been used.

3 Functions of Money… Medium or form of exchange We trade money for goods and services Without money we would have to barter Serves as a store of value We hold our wealth in the form of money until we use it Serves as a measure of value Money assigns value to a good or service

Types of Money Coins Currency The metal form of money like the penny! paper money and coins

Why does money work? It works because we accept that they have value. We know others will accept it.

The Financial System Commercial Banks offer full banking services such as checking & savings accounts, loans, lines of credit, Certificates of Deposits, etc. have a large influence on financial industry Examples:

The Financial System Savings and Loan Associations Traditionally used for home loans Accept deposits and issue savings accounts Usually found in smaller towns

The Financial System Credit Unions Not for profit Must be a member to use Certain business, labor unions and governments have credit unions Usually have lower fees and interest rates Examples: Teacher Federal Credit Union Anoka Hennepin Credit Union

How do banks make money? You deposit money in a bank The bank uses some of that money to make loans to other customers The bank charges interest (a fee to use the money) on the loan

Safeguarding Our Financial System As a result of the financial collapse of the 1920’s, our financial system is regulated and insured to protect consumers. Banks are required to report to one or more regulatory agencies Banks must follow rules and accounting practices that minimize risk

Safeguarding Our Financial System FDIC (Federal Deposit Insurance Corporation) created in 1933 government agency protects consumers deposits (up to $250,000) when a bank fails It used to be $100,000 but the raised the protection

Why don’t they just print more money?!?! http://www.youtube.com/watch?v=rACvkAA8_ok http://www.youtube.com/watch?v=d_Yrvfprxas