Money: How Did It All Start?
Welcome to Human Asia’s Kidpreneurs Money Series – Lesson 2.
In this program, you will learn how to teach your kids the basics of finance. Finance is the basic building block in entrepreneurship, but unfortunately finance is not being taught enough (or at all) at school.
This program is meant to close that knowledge gap for your kids so that they can enter their careers later in life with a solid foundation of this very important knowledge.
The lessons can either be read by the kids themselves, or you can deliver it to them in the form of instructional teaching – whichever works best for you and your kids!
However, make sure that you read from lesson to lesson without skipping as one lesson builds up to the next.
Without further ado, let’s begin Lesson 2!
Thousands of years ago before money was developed, people were self-sufficient. They took care of themselves and their children in their small villages. Life was simple.
They survived primarily by means of hunting. When they ran out of their food supply, they moved from one place to another. During that time, there was no need for money.
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Slowly People Learnt to Specialize
As time went by, many people developed special skills. Some learned to raise cattle, pigs, and sheep. A few became good at planting crops and grains, while some developed skills in fishing, carpentry, mining, and crafting.
People learned to specialize, which means to choose one thing to be really good at.
With specialization, productivity increased, meaning that people produced more than what they needed. Specialization encouraged people to trade with each other for goods they were unable to produce or for tasks they could not perform.
For example, a farmer would need the help of a carpenter to build a house, and a carpenter would need a farmer to get food.
Trading started, but no paper bills or coins were used. People then were bartering. Bartering is the exchange of goods and services without the use of money.
It is similar to trading baseball cards, swapping video games, or switching homemade lunches with your buddies. Before money was developed, a farmer could trade a cow for two pigs, or a carpenter could offer to build a barn in exchange for food and tools.
Bartering works as long as one person finds another person willing to trade and accept the goods or services being exchanged. But it does not always work.
If the cow farmer believes that the value of his cow is at least equal to two pigs, what will happen if he cannot find a pig farmer who has two pigs to trade? What if the pig farmer only has one small pig? Will the cow farmer trade his cow for bread or a tool instead? Most likely, the cow farmer will not trade his cow if he cannot find something that is at least of same value.
If he cannot find one, no exchange will take place. Therefore, bartering does not always work as it can be difficult to find a match for the items being traded.
Using Gold and Silver as Money
As trading expanded, people learned to trade more goods including precious metals such as gold and silver.
Because gold was rare, beautiful, and could be molded into bars, gold was accepted as a common form of payment. The value of the gold was determined by its weight. Trading thrived because gold was widely accepted as an instrument of exchange.
The use of gold for trading has its own drawbacks. When the transactions became bigger, the traders were burdened with carrying heavy loads. Can you imagine how much gold a trader needed to bring if he wanted to buy a farm or a big boat?
The solution: Traders found it easier to leave their gold with another person like a goldsmith or a banker for safekeeping. The goldsmiths and banks issued notes written on paper stating how much gold had been left with them. The person holding the note had the option to go to the bank and exchange the note with gold, or he could continue to use the note for other transactions.
Paper Money Coins were Born
Guess what happened next? Because the notes were valued by actual gold, the notes circulated in the marketplace.
Traders accepted those notes as payments for goods and services. As a result, notes or paper bills (one dollar bills, five dollar bills, twenty dollar bills, etc.) became regular instruments of exchange.
Coins started out as gold and silver, but soon changed into copper and other mixed metals.
Interestingly, the money you use today is no longer backed by gold, and the paper itself used to print money has very little value or worth. So the question you might have is “Why does my money remain valuable?”
To keep your money valuable, the government has to guarantee its value. A guarantee is a promise that a certain condition will be fulfilled. The value of the money you use today is guaranteed by the government, and you trust the government’s guarantee.
This system of the government providing their guarantee and the people trusting the government helps maintain the stability and value of our money.
Today’s Important Words:
Specialize : choosing one thing to be really good at.
Productivity : Being able to make goods or provide services
Bartering : the exchange of goods and services without the use of money
Instrument of exchange : anything that can be used to make a trade
Transaction : buying and selling of goods and services
Note : a piece of paper that promises to pay the holder
Government : the group of people who leads a nation or community
Guarantee : a promise that a condition will be fulfilled
Stability : being strong and less likely to change or fail
Now read : Kidpreneurs Money Lesson 3: How to Earn Money