Introduction to Money and Banking
Money is the foundation of our modern economy. Understanding how it works is essential for financial success.
What is Money?
Money serves three key functions:
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Medium of Exchange: Used to buy goods and services
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Store of Value: Keeps purchasing power over time
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Unit of Account: Measures and compares values
Types of Money
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Cash: Physical bills and coins
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Digital Money: Bank deposits, electronic transfers
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Credit: Borrowed money you pay back later
How Banks Work
Banks are intermediaries that:
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Accept deposits from savers
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Lend money to borrowers
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Facilitate payments and transfers
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Provide financial services
Banking Services
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Savings Accounts: Earn interest on deposits
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Checking Accounts: For daily transactions
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Loans: Borrow for major purchases
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Credit Cards: Revolving credit for purchases
Key Banking Concepts
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Interest: Money earned on savings or paid on loans
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Principal: The original amount borrowed or invested
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APR: Annual Percentage Rate - true cost of borrowing
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Compound Interest: Interest earned on interest
Remember: Banks make money by lending your deposits at higher rates than they pay you.