It is important for children to learn about money. Money is a medium of exchange for goods and services. It helps us to set the value of different things. In India, the RBI is responsible for printing currency notes and minting coins.
What is money?
Everyone uses money. We use it in malls, while holidaying abroad and when we go to the doctor. But what is money exactly? Money is a tool with which you can fulfil your needs and wants. It is a medium of exchange for goods and services.
In earlier days, before money was invented, people used to exchange goods. For example the farmer used to barter the rice from his field for cloth from the weaver. But this was cumbersome. It is difficult to calculate the value of one article in terms of another. For example, how do you define the value of 1 kg of rice in terms of cloth? Moreover what if you did not want cloth but apples. The farmer had to then find someone who grew apples and also wanted rice so that the exchange could take place. So money was invented. Money serves as a measure of exchange and helps us to determine value of all items and services in a uniform way.
Let us take a simple example. In the morning, your mother gives you a glass of milk. We get milk from the milkman. The milkman gets it from the farmer who raises cows. Getting milk from a cow is hard work. You have to feed her, give her shelter and take care of her. You have to get the milk and transport it to some place or factory from where the milkman takes it and delivers it to your house. The farmer deserves a reward for his hard work just like you get toys or games from your parents when you do well in school or games. But we are not sure what the farmer likes. So we give him money. Of course we do not give him directly. We give money to the milkman for delivering the milk to our home. The milkman gives the farmer money for getting the milk. The farmer can then buy what he likes for himself and his cow.
We go to an ATM and magically money comes out by inserting a card and punching a few digits. But how do we get to own this money? You need to provide something of value which people need, be it goods or services to make money. For example, a shopkeeper sells products to earn money. If he has products that no one needs, he will not sell anything and earn no money at all.
The software professional renders his service to the company he works for by writing programs and developing software applications. For this, he gets money in the form of a salary that is deposited in his bank account. He can withdraw this money from the ATM and use it to buy what he wants. If he stops working, he will not get money in his bank account and will not be able to take out money from the ATM. If he withdraws all the money and spends it on day 1, he will again be left with no money till the next salary is deposited in his bank account.
Who makes money?
The Reserve Bank of India (RBI) is the central bank of India. It has the authority to make money. The RBI prints currency notes and mints coins. To put it simplistically, the quantity of money to be made is decided by demand for notes and coins (notes and coins get spoiled over time), performance of the country in terms of production of goods and services and prices of goods and services.
Next time, you handle money, do think about these aspects and ask us if you have any questions.
In our next article, we will look at more aspects of money like saving, spending and rise and fall of prices.