Take a second to imagine a world without money. We would have the arduous task of exchanging things, like we used to. For example, food for clothing. The problem with this is that two people’s needs have to match exactly to be able to make the exchange. There are easier ways of doing this, which is why money evolved over time, and now fulfils three very important functions:
Useful to know: why do we have money?
We all need it, and a minority has too much of it: the idea of a world without money is now inconceivable. But why exactly does money exist? Watch the video here.
Function 1: Money as a means of payment
Money is a generally accepted method of exchange and payment, and is used to exchange and obtain goods and services.
Function 2: Money as a store of value
The second function of money is as a store of value. Money can, for instance, be invested on stock exchanges in order to save up for the future.
- More on investing
Function 3: Money as a measure of value
And finally, money is also a measure of value – it can be used to value and compare goods and services. To measure the value of money, you have to consider the purchasing power of a currency. It expresses how many goods and services can be purchased for a given amount. This common unit of account makes it easier to keep track and simplifies information on the markets.
Cash isn’t the only way to pay anymore
Payment behaviour has changed dramatically in the last few years. Cash isn’t the only way to pay anymore. More and more transactions are being made electronically.