What Is Money?
Learn about what money does for you and why we use it.
Why do we use money? Before money, people bartered the goods and services they had to offer—meaning they traded one object for another, like shoes for food. Bartering makes it difficult to keep track of how much you have. A sheep is worth more to one person than another. Money evens it out. A dollar is a dollar to everyone. Money is also easier to store, especially nowadays. With a barter system, you’d have bins of grain or livestock to keep around until you could trade it for something else.
What is money? Beyond the paper and coins we see everyday, money exists in a variety of forms. In fact, 92% of money around the world exists in some digital form. So what is money? Money is an item of exchange, a unit of record, and a store of value.
Item of exchange. When you buy something, you exchange it for money. It’s probably what most of us use money for every day. You take something to the register, the cashier rings you up, you hand them money, you take your thing home. It works the other way too. If you’re having a garage sale, people hand you money for the things you’re selling.
Unit of record. There are things that when you buy them they gain or lose value. They are worth more or less. Because we can easily understand money, that’s the way we measure. Things like cars lose value over time. So if you buy a car for $30,000, in five years it may only be worth $10,000. It’s easier to use money to measure that change, because saying a whole car is now only worth 1/3 of a car is hard. Different cars are worth different amounts, but money stays the same.
Store of value. You probably have a savings account. In that account is a record of how much money you have. It’s much easier to say you have money in an account than to figure out how much you can trade for. This is also where most money is—in accounts as a digital record. When you deposit a $10 bill into your account, they mark your account as having that money. The credit union then holds that bill until someone else needs to take $10 out of their account.
So, what is money? Money makes things easier. Bartering can be slow and sometimes not an even trade. Money stays the same from person to person. It makes it easy to know how much you have and what the things you want are worth.