Lesson 1

Topic: What is money? (45-60 minutes)

Goal: Have students begin to think about the nature of money and how it is used.

Lesson Overview:

1. Class discussion – What do they know?

2. Background Information to share – The History of Money

3. Video – Middle School Money Matters Video #1 – What is Money?

4. Paper activity – Country and currency matching

5. The 6 features of money

6. Wrap-up or Extension activity

Class discussion:

• Begin by posing the question ‘What is money’ and see what responses the students come up with. You can keep a list of answers on the board to follow up on or let them come fluidly as a class discussion.

• Follow up questions to stimulate discussion could be: ‘Why do we have money?’ and ‘Why does money have value?’ ‘Why is the brown piece of plastic with the 1 and two zeros on it worth more than the blue piece of plastic with the 5 on it when they are made of the same plastic and obviously cost the same to produce?’ Where did money come from? Has it always been around? What other items do you think have been used as money in the past?

Background information/Lecture:

In ancient times barter was used to trade items between people and groups, but this meant for a transaction to take place, you needed to find someone who not only had what you wanted, but wanted what you had, at which point a trade could be negotiated. But as trade became more complex, it necessitated a better medium of exchange, a better way of being able to exchange or trade goods. Commodity money (money that is an item that has inherent value) was some of the first ‘modern’ money to be used and has been used for thousands of years. The commodities that were used as money varied from country to country. Things like shells and precious stones and salt have all been used at some point. Then along came precious metals such as gold, silver and copper which worked well because they were divisible into smaller amounts and were very durable (unlike salt where if it got wet and dissolved, well you were out of luck). The durability and desirability of precious metals meant their history of being used as commodity money lasted a long time, especially once these metals began being used to make actual coins, which arrived around 600BC in the middle east. After a long while precious metals began to be worth too much to make coins out of and this eventually evolved into the coins and paper money we still see today (where the coins are not made of precious metals). New coins are no longer considered to be commodity money but are now considered a fiat currency – money that has no inherent value, but is backed by a group or country and government.

The first fiat currency that was similar to the paper or plastic currency we are now used to was first seen during the Song dynasty in China in the 11^th century. It was a printed fabric currency backed by the ruler of the time . Various forms of paper or fabric currency were used in the middle east and Asia around that time. Usually this cash was backed by the ruler of that territory. Around the 16^th century in Europe is where we first see the notion of ‘bank notes’, the money we think of a ‘cash’ today that was issued by financial institutions. But It wasn’t until a couple of hundred years later in the 1600-1700s that the idea of a centralized government controlled bank was born that would control the currency for that country. For example the Bank of England was granted the sole authority to produce bank notes only in 1694 and as for Canada and the United States it was much later as they were not even countries yet at that point. So the notion of currency/cash as we know it today is still a relatively new concept that is still evolving. Recently we have seen the invention of digital currency such as Bitcoin, which essentially only computer code, ones and zeros on a computer server, but it now has value because a large enough group of people believe in it.

Currently in Canada we have the Bank of Canada and in the United States it is called the Federal Reserve. These government entities control the currencies and money supply of the country, from how much cash is printed to interest rates. Nowadays, since the invention of computers and the Internet almost all money transactions are done electronically. Cash is slowly playing a smaller and smaller part of our economy. We may reach a point in our lifetimes, when physical cash is no longer used.

So now that we know some of the history of money – what is its purpose? What does it do? These days modern economists consider money to have three functions – It is a store of value, a medium of exchange and a unit of account. These three functions of money will be explained in more detail in the video.

Video: Show Middle School Money Matters Video #1 – What is money? (Afterwards ask questions about the video to ensure they understood)

Key review points from lecture/video:

• Money is a store of value, others include Gold and metals, gems, resources, company shares, gift cards, real estate, bitcoin….

• Money is a medium of exchange, something that is agreed upon to have a certain value and can be used for trade (purchase and sale of items)

• Money is a unit of account, it can be used as a measuring tools to determine the relative value of goods and services.

• Why is money worth anything – because we believe it is and it is backed by govt. (what about things like Monopoly money or Saltspring Is. Dollars)

• What are the different types of money : currency, electronic, commodities, cryptocurrency etc..

Activity sheet 6 – 1: Match the currency with its country (paper based activity). 20 countries and 20 currencies are listed. Students should write the name of the currency next to the corresponding country. Teachers can decide whether to give this activity individually, in partners or groups. Teachers can decide whether students will be given access to the Internet to look up answers or perhaps see how many the class can get on their own first and then look up the rest. Notice that ‘Dollar’ is listed 3 times. There are many different countries around the world that use the term ‘Dollar’ to describe their currency even though, as we know, they are not the same from country to country. What is something the countries who use the term dollar have in common? (All English speaking, many are commonwealth countries but not all, newer countries).

Once students have finished their currency sheets, have them think about the features or ‘characteristics’ of money. Not the uses, but the features, what do all these currencies have in common. Ask the class and see what they can come up with.

These are the 6 features of currency:

Durability: It has to last a reasonable length of time, it can’t be something that goes bad. If you were paid in fruit, it would have only a short span before it went bad and was worthless.

Portability: You have to be able to take it around with you, either by carrying it (like cash) or having easy access to it (through ATMs) no matter where you are.

Divisibility: It has to have divisible units that make sense and are easy and consistent. In the past people cut up gold coins and weighed them, this is too cumbersome. All currencies have something like dollars and cents.

Uniformity: It has to be the same. Every single dollar coin is the same and worth the same amount.

Limited Supply: The supply has to be limited. If money were unlimited, it would have no value, this is key to the delicate balance of controlling a country’s money supply to manage inflation.

Acceptability: It has to be accepted by enough people to make it useable to buy the things we want. Bitcoin and the cryptocurrencies had issues with this at first, you couldn’t exchange bitcoin for real cash. But gradually as more and more people believed in its worth, its rate of acceptability increased.

In-class/Homework Assignment/Extension/Inquiry:

What does the phrase ‘Exchange Rate’ mean to you? Look up online a definition of currency exchange rates and have students see if they can come up with a definition that the class will understand. Look the exchange rate of our Canadian Dollar with some of the currencies listed on the activity sheet. What are some of the strangest exchange rates? For example the Italian Lire used to be worth so little that $1000 Canadian dollars was worth $1,000,000 lire, so nearly everyone was a millionaire!

*What are the two main global baseline currencies at the moment? (The US Dollar and the Euro) Why do kids think that is?