Money makes the world go round, but many people don’t have a very clear idea about what it really is or how it works.

Despite its Geld Uitleg history, the essence of money is simple: it provides an efficient means of exchange for goods and services in our economy. To do that it must be accepted by all as a medium of payment, have the characteristics of a store of value and act as a unit of account.

We use money in a variety of ways: coins and notes, cheques, credit cards and mobile phone payments. Each of these serves a different function and is designed to make it as easy and cost-effective as possible for us to pay for things we need and want.

Money Matters: Exploring Its Functions and Importance

The first of these is money’s ability to serve as a medium of exchange. Before the development of money, people would trade goods directly with each other – for example, you might trade some strawberries for a haircut, but this creates the problem that both parties need to have something the other wants in order to complete the trade. This is why money came into existence: it allows people to swap one good for another, without needing to find something else that both parties want.

You can help kids understand this by talking openly about the fact that most of the stuff we buy is paid for with money we’ve earned through work and saving. Explain how much different items cost and how we prioritise what we spend our money on, by thinking about ‘needs’ and ‘wants’. Similarly, when you’re shopping, take your children with you and let them experience the process of choosing which item is best value for money.