Money and Finance
Economics
What is an economy? An economy is a system for allocating resources to meet people's needs and wants. It determines how goods and services are made and exchanged. The study of the economy is called economics and a person who studies economics is called an economist.
The Economy You've probably heard people talk about "the economy." When people say this they are usually referring to the economy of the country where they live. A good economy is generally one where there are lots of good-paying jobs, businesses are making money, and the overall economy of the country is growing. A bad economy is one where people are losing their jobs, businesses are shutting down, and the overall economy isn't growing.
Micro vs. Macro Economics is often divided up into macroeconomics and microeconomics.
Microeconomics studies how individuals and businesses make decisions within the economy. Examples of microeconomics include:
Macroeconomics looks at a bigger picture than microeconomics. It looks at the economy as a whole and not individuals or small businesses. Examples of macroeconomics include:
Goods and Services Two important terms in an economy are goods and services. Goods are physical objects that are bought and sold. They include things like cars, food, and clothes. Services are actions that one person pays another to do for them. Services include things like medical care, teaching, fire-fighting, and baby-sitting.
Types of Economies
What type of economy is the United States? The United States, like most countries today, is a mixed economy. The government controls some industries and places regulations on other industries, but much of the economy is allowed to run as a free market.
How Banks Work
What is a bank? A bank is a business that accepts and holds money for people. Banks pay interest in return for holding money. Banks make money by loaning money out to other people and businesses at a higher rate of interest.
Why are banks important? Banks are very important to the economy. They help money flow and business to occur. On one hand, banks provide the service of keeping people's savings safe. On the other hand, they use that money to help people buy houses, cars, and start businesses. Banks are an essential part of the modern economy.
Deposits One of the main functions of a bank is to accept and hold deposits. Deposits are money that people put into a bank. There are two main types of accounts that people have.
Checking Account - A checking account is an account where people can get easy access to their money. They can use their money in the checking account by writing checks or using a debit card. There are often fees associated with checking accounts and possible minimum balance requirements.
Savings Account - A savings account is mostly for savings. These accounts have less services and access than checking accounts, but typically offer higher interest and less fees.
Other types of accounts at banks include CDs (Certificate of Deposit), Money Market Accounts, and IRAs (Individual Retirement Accounts).
Transactions Getting money in and out of your bank account is called a transaction. There are a number of ways to put money in or take money out. The most obvious way is to go to the bank physically and get your money or give them money. Some other ways include:
Check - One of the oldest ways to use money in a checking account is by writing a check. Once the check is written out for a certain value and signed, the person or business who it is written to can go to their bank and get the money.
ATM - ATM stands for Automated Teller Machine. Banks often offer a card that you can use at ATMs which may be located in different places like a grocery store or a gas station. With this card and a password, the ATM will give you cash and deduct it from your bank account.
Debit Card - A debit card is a card you can use to buy things directly. Debit cards work similar to credit cards, but the money comes directly out of your bank account.
Electronic Transactions - Money can even be moved in and out of a bank account electronically. Many people get their paychecks sent directly to their bank account using direct deposit. The money is sent electronically from their employer's bank right into their checking account.
Loans What do banks do with all of the money they get? They loan it out to other people and businesses. They make money by charging a higher rate of interest on loans than they pay for deposits. Banks provide loans for people to buy cars, houses (a home loan is called a mortgage), and to start businesses.
What if the bank goes out of business? You might think your money is completely safe, but what if the bank is robbed or goes out of business? Today, this isn't too much of a problem. Most bank deposits (up to a certain amount) are protected by the U.S. government through the Federal Deposit Insurance Corporation (which is usually just called the FDIC).
Interesting Facts About How Banks Work
Supply and Demand
A Basic Law of Economics Supply and demand is one of the basic ideas of economics. In a free market, the price of a product is determined by the amount of supply of the product and the demand for the product.
What is supply? The supply of a product is how much of the product is available for purchase at a given price. The law of supply says that as the price of a product increases, companies will build more of the product.
When graphing the supply vs. the price of a product, the slope rises as shown in this graph.
What is demand? Demand of a product is the amount of product that people want to buy at a given price. The law of demand says that as the price of a product increases, the less of that product people will want to buy.
When graphing the demand vs. the price of a product, the slope falls as shown in this graph.
How Supply and Demand Determine Price There are four basic laws that describe how supply and demand influence the price of a product:
1) If the supply increases and demand stays the same, the price will go down.
2) If the supply decreases and demand stays the same, the price will go up.
3) If the supply stays the same and demand increases, the price will go up.
4) If the supply stays the same and demand decreases, the price will go down.
Market Equilibrium Market equilibrium is when the supply of the product equals the demand of the product. The market for a product will move towards equilibrium over time.
Equilibrium can be shown on a graph. It is where the supply and the demand curves intersect.
Changes in Supply and Demand Supply and demand can suddenly change. This can cause a "shift" in the demand or supply curves. Any number of factors can change the supply or demand. For example, the demand for a football team's jerseys would go up if they won the Super Bowl. Also, the supply for those same jerseys may go down if the factory that made them burnt down.
See the graph for an example of a demand curve shift.
Here are some things that can change demand:
Here are some things that can change supply:
Budgeting Money
Every time you spend your money you make a decision. Is what I'm buying worth the cost? Making the right decisions with money can be difficult. Sometimes it is a lot easier to spend your money than it is to make it. One way to help us spend our money wisely is by using a budget.
What is a budget? A budget is a plan on how you will spend your money. You keep track of money you earn and things you want to buy. Then you plan ahead of time what you can buy based on how much money you will earn.
Why is a budget important? Budgets are important to help us save money and to keep out of debt. As you get older, expenses and income become more complicated. You may have a mortgage, kids to feed and clothe, a car, vacations, investments, taxes, and all sorts of other things to keep track of. It's difficult to manage all of this stuff without a budget.
Figuring Your Expenses The first thing to do when setting up a budget is to figure out your expenses for each month. Write down things that you can't do without. This list typically includes things like housing (rent or a mortgage), clothes, food, gas, insurance, car payment, and utilities (heating, water, etc.). Figure out about how much you spend each month on each of these. Then you can add in other things you spend money on like going to the movies or buying video games.
Figuring Your Income Next, you need to figure out how much money you make each month. This is usually a little easier as most people just get income from their job.
What is your budget? Now figure the difference between your expenses and your income. Hopefully, you have more income than expenses. If not, then you need to figure out ways you can cut back on your expenses. You need to budget your expenses to be less than or equal to what you make.
How much do you want to save? A budget can be helpful in saving for something special. Maybe it's a new car or a vacation to the Bahamas. By using a budget, you can figure out how much you can save each month.
Let's say your basic expenses are $1000 a month and you make $1500. This means you have $500 extra each month. You could spend this on other stuff or you could save it . If you need $2000 for that vacation next summer, then you can budget to save $200 a month for the next 10 months. In 10 months you will be having fun in the Bahamas.
Spending your Money Wisely A budget can help you to spend your money wisely. Keeping track of everything you spend can help to keep you out of debt. It can also help you to buy those special things you really want rather than wasting your money on spur of the moment spending.
Interesting Facts About Budgeting Money