Today, you’ll need out…Today, you’ll need out…Your notebookYour notebookVocab sheet [10-11]Vocab sheet [10-11]One separate sheet of paper w/ One separate sheet of paper w/ name at topname at top

Money & BankingMoney & Banking

Chapter 10Chapter 10

MoneyMoney

Section 1Section 1

Opening QuestionsOpening Questions

1. How long have people been using money?1. How long have people been using money?

2. Besides the paper money we use today, 2. Besides the paper money we use today, what else do you think may have been what else do you think may have been used as money in the past?used as money in the past?

What is Money?What is Money?

• How can we define money?How can we define money?

• MoneyMoney is: is:

Anything that serves as a Anything that serves as a __________________, , a a ____________________________, and , and

a a ____________________________..

What is Money?What is Money?

• How can we define money?How can we define money?

• MoneyMoney is: is:

Anything that serves as a Anything that serves as a medium of medium of exchangeexchange, a , a __________________________, and , and

a a ________________________..

What is Money?What is Money?

• How can we define money?How can we define money?

• MoneyMoney is: is:

Anything that serves as a Anything that serves as a medium of medium of exchangeexchange, a , a unit of accountunit of account, and , and

a a ________________________..

What is Money?What is Money?

• How can we define money?How can we define money?

• MoneyMoney is: is:

Anything that serves as a Anything that serves as a medium of medium of exchangeexchange, a , a unit of accountunit of account, and , and

a a store of value.store of value.

The 3 USES of MoneyThe 3 USES of Money

• Medium of ExchangeMedium of Exchange – Physically exchanged for goods and servicesPhysically exchanged for goods and services

• Unit of AccountUnit of Account – – – A means for comparing the values of goods/servicesA means for comparing the values of goods/services

• Store of ValueStore of Value – – – Something that keeps its value if it is stored Something that keeps its value if it is stored

rather than usedrather than used

““Pre-Money” DaysPre-Money” Days

• How did people survive before money was How did people survive before money was “invented” ???“invented” ???

• BarterBarter – the direct exchange of one set of – the direct exchange of one set of goods/services for anothergoods/services for another

The 6 Characteristics of MoneyThe 6 Characteristics of Money

• Money that is in the form of paper bills and Money that is in the form of paper bills and coins is called coins is called currencycurrency..

• In the past, societies have used many different In the past, societies have used many different objects as their own form of money.objects as their own form of money.

• Experts say that for an object to work well as Experts say that for an object to work well as money… it would need money… it would need 6 characteristics6 characteristics..

What are they?What are they?

1. Durability1. Durability

• Must be able to withstand the physical Must be able to withstand the physical wear and tear that comes with being used wear and tear that comes with being used over and over againover and over again

2. Portability2. Portability

• People need to be able to take money with People need to be able to take money with them as they go about their daily businessthem as they go about their daily business

3. Divisibility3. Divisibility

• Must be easily divided into smaller Must be easily divided into smaller denominations or unitsdenominations or units– Ex. 100’s, 20’s, 10’s, 5’s, 1’s, quarters, Ex. 100’s, 20’s, 10’s, 5’s, 1’s, quarters,

dimes…dimes…

4. Uniformity4. Uniformity

• Any two units must be the same in terms Any two units must be the same in terms of what they will buy.of what they will buy.– Each identical unit needs to be the same Each identical unit needs to be the same

size, weight, dimensions…size, weight, dimensions…

Colonial MoneyColonial Money

5. Limited Supply5. Limited Supply

• ““Money would not be useful if it grew on Money would not be useful if it grew on trees.”trees.”

– Why? The supply must stay somewhat Why? The supply must stay somewhat constant, or controlled, otherwise rapid constant, or controlled, otherwise rapid inflationinflation would occur. would occur.

{ Hyperinflation }{ Hyperinflation }

6. Acceptability6. Acceptability

• People must be able to take this money People must be able to take this money nearly anywhere and others will accept it nearly anywhere and others will accept it as having a certain value.as having a certain value.– Can you take money to the mall, to the Can you take money to the mall, to the

grocery store, to the bank, and will others grocery store, to the bank, and will others be willing to trade you for it?be willing to trade you for it?

Where does Money get its Where does Money get its Value?Value?

• Commodity MoneyCommodity Money– Has value, but is Has value, but is alsoalso used as money used as money

• Representative MoneyRepresentative Money– Has value because it Has value because it representsrepresents a good of a good of

value, and can be exchanged for that anytimevalue, and can be exchanged for that anytime

• Fiat MoneyFiat Money– Money that has value because the Money that has value because the government government

says that it has valuesays that it has value

Where does Money get its Where does Money get its Value?Value?

CommodityCommodityMoneyMoney

FiatFiatMoneyMoney

RepresentativeRepresentativeMoneyMoney

Review: Section 1 Review: Section 1 [on separate paper][on separate paper]

1)1) What are the 3 uses for money?What are the 3 uses for money?2)2) How does money make doing business How does money make doing business

easier?easier?3)3) What was it like before there was money?What was it like before there was money?4)4) What characteristics must money have to be What characteristics must money have to be

useful? (6 – as many as you can) useful? (6 – as many as you can) 5)5) What is the difference between commodity What is the difference between commodity

money and representative money?money and representative money?6)6) Why does the US use fiat money today?Why does the US use fiat money today?

The History of American BankingThe History of American Banking

Section 2Section 2

What exactly What exactly is a BANK?is a BANK?

• A A BankBank is: is:

an institution that exists to RECEIVE, an institution that exists to RECEIVE, KEEP, and LEND moneyKEEP, and LEND money

Back in the olden days…Back in the olden days…

• When the United States of America had When the United States of America had just been formed, there were some serious just been formed, there were some serious arguments about how the country should arguments about how the country should be founded.be founded.

• One of the most important divisions that One of the most important divisions that arose was between arose was between Thomas JeffersonThomas Jefferson and and Alexander HamiltonAlexander Hamilton..

Jefferson vs. HamiltonJefferson vs. Hamilton

Thomas Jefferson:Secretary of State under

George Washington

Alexander Hamilton:Secretary of Treasury under

George Washington

Can’t we all just get along???

How Banking saved AmericaHow Banking saved America

• Most historians agree that the creation of a Most historians agree that the creation of a central, or national BANK OF THE UNITED central, or national BANK OF THE UNITED STATES, helped the country to avoid many STATES, helped the country to avoid many problems.problems.

• By following Hamilton’s advice, the US By following Hamilton’s advice, the US built up credit and good faith among other built up credit and good faith among other nations. This helped the US to grow to nations. This helped the US to grow to industrial dominance a century later.industrial dominance a century later.

Bank RunsBank Runs

• Bank RunBank Run – Widespread panic in which – Widespread panic in which many people try to redeem their paper many people try to redeem their paper money at the bankmoney at the bank

• Throughout the 1800s, Banks were far Throughout the 1800s, Banks were far from perfect. from perfect.

• In times of crisis, panic occasionally set In times of crisis, panic occasionally set off a BANK RUN.off a BANK RUN.

The Gold StandardThe Gold Standard

• By the 1870s, the US adopted a system By the 1870s, the US adopted a system called the GOLD STANDARDcalled the GOLD STANDARD

• Gold StandardGold Standard – A system in which paper – A system in which paper money and coins are equal to a certain money and coins are equal to a certain amount of gold. amount of gold.

• Thus, if you had a $50 bill, there was 50 dollars worth of Thus, if you had a $50 bill, there was 50 dollars worth of gold sitting somewhere (like Fort Knox) gold sitting somewhere (like Fort Knox) backing upbacking up that that paper money.paper money.

The Federal Reserve SystemThe Federal Reserve System

The The FEDFED• The first true CENTRAL BANKThe first true CENTRAL BANK• A system of A system of 12 Regional Federal 12 Regional Federal

Reserve BanksReserve Banks across the US. across the US.

What does the FED do?What does the FED do?

Jobs of the FED:Jobs of the FED:• To act as the To act as the Bank’s BankBank’s Bank

• Banks may store extra money in a FED accountBanks may store extra money in a FED account• Banks may borrow short-term loans from the FEDBanks may borrow short-term loans from the FED

• To maintain the money supply… creating To maintain the money supply… creating FEDERAL RESERVE NOTES – in the US mintsFEDERAL RESERVE NOTES – in the US mints

• To control the money supply by setting the To control the money supply by setting the interest rateinterest rate

The 12 FED regionsThe 12 FED regions

The Money SupplyThe Money Supply

The Money Supply is:The Money Supply is:

all the money available in the US all the money available in the US Economy.Economy.

This includes:This includes:• CashCash• Checking & Savings DepositsChecking & Savings Deposits• Money Market FundsMoney Market Funds

The Great DepressionThe Great Depression

• What do you remember about the Great What do you remember about the Great Depression?Depression?– What were the causes?What were the causes?– How was it really depressing?How was it really depressing?– How did the US get out of the depression?How did the US get out of the depression?

FDICFDIC

Federal Deposit Insurance CorporationFederal Deposit Insurance Corporation (FDIC) (FDIC)• The FDIC insures customers deposits if a bank The FDIC insures customers deposits if a bank

fails.fails.• Today, the amount insured is up to $100,000 Today, the amount insured is up to $100,000

per account.per account.

Review: Section 2 Review: Section 2 [on separate paper] [on separate paper]

1)1) How did the creation of a National Bank help the How did the creation of a National Bank help the United States to survive its early years?United States to survive its early years?

2)2) Who’s idea was it to create a BANK of the US?Who’s idea was it to create a BANK of the US?

3)3) Why was Jefferson opposed to the idea of Why was Jefferson opposed to the idea of focusing on building up the US industryfocusing on building up the US industry

4)4) Why did the US begin using the Gold Standard? Why did the US begin using the Gold Standard? Why isn’t US money backed by gold today?Why isn’t US money backed by gold today?

5)5) How has the FDIC helped people to have more How has the FDIC helped people to have more trust in their banks?trust in their banks?

Banking TodayBanking Today

Section 3Section 3

MortgageMortgage

• What is a What is a MortgageMortgage??

• A specific type of loan that is used A specific type of loan that is used

to buy to buy real estatereal estate

[ land/property/housing ][ land/property/housing ]

Principal vs. InterestPrincipal vs. Interest

• When you take out a loan, the bank gives When you take out a loan, the bank gives you the amount of dollars, and you agree you the amount of dollars, and you agree to pay it back over time (usually in monthly to pay it back over time (usually in monthly installments)installments)– PrincipalPrincipal – The amount that goes toward – The amount that goes toward

actually paying down the debtactually paying down the debt– InterestInterest – The price charged for the use of – The price charged for the use of

this borrowed moneythis borrowed money

Credit CardsCredit Cards

• What are the ADVANTAGES?What are the ADVANTAGES?• What are the DISADVANTAGES?What are the DISADVANTAGES?

– What YOU should be aware of regarding What YOU should be aware of regarding your Credit Cards?your Credit Cards?

Interest Interest Rate (APR)Rate (APR)

LimitLimit FeesFees

Online?Online? Any Rewards?Any Rewards? Special Deals Special Deals to sign up?to sign up?

Compound InterestCompound Interest

• Just about any loan or credit card you Just about any loan or credit card you apply for will COMPOUND the interest you apply for will COMPOUND the interest you owe.owe.

• How does How does Compound InterestCompound Interest work? work?– Check out Check out figure 10.7figure 10.7 (p. 261) to see what (p. 261) to see what

this looks like.this looks like.• How can this work against you?How can this work against you?• How can this work for you?How can this work for you?

What should you look for in a What should you look for in a Bank?Bank?

• ConvenienceConvenience– Is it out of the way? Customer service? Is it out of the way? Customer service?

Online Banking (if you plan to use it)Online Banking (if you plan to use it)• ServicesServices

– Savings, Checking, ATM, Debit Card, …Savings, Checking, ATM, Debit Card, …• Watch out for FeesWatch out for Fees!!• What is the What is the Interest RateInterest Rate??

How does your How does your CHECKCHECK work? work?

Review: Section 3Review: Section 3 [on separate paper] [on separate paper]

1)1) What are the 3 primary functions of a BANK?What are the 3 primary functions of a BANK?

2)2) What is a real estate loan commonly called?What is a real estate loan commonly called?

3)3) What is the difference between principal and What is the difference between principal and interest?interest?

4)4) Name three factors you should consider in Name three factors you should consider in choosing what bank you will do business withchoosing what bank you will do business with

5)5) Name three things you should find out before Name three things you should find out before applying for any credit cardapplying for any credit card

6)6) Has technology improved the banking industry? Has technology improved the banking industry? Why / Why not?Why / Why not?

Discussion TopicDiscussion Topic

• TOPIC: TOPIC: The Future of MoneyThe Future of Money

– Read pp. Read pp. 268-269268-269– Answer Questions Answer Questions 1-41-4– We will discuss your thoughts on this issueWe will discuss your thoughts on this issue