How Does Money Work?
In this lecture of the Personal Finance Masterclass, you'll learn how money works. To truly understand the rest of this course, you first have to know how money works. Let’s go back to the basics.
- An alternative to a currency-based society, is a bartering economy. This can get tricky and wouldn’t work if the two parties don’t agree on what to barter.
- That’s where money comes into play. Transactions happen quicker and people can ‘barter’ with people who wouldn’t have normally wanted their offers.
- Today money comes in many forms - paper notes, coins, digital numbers.
- For many many years we were on a gold standard, meaning each paper note or coin was worth a specific amount of gold. From 1879 to 1930s people could trade $20.67 for an ounce of gold.
- But during the Great Depression, FDR cut the dollar’s direct tie with gold to be able to pump more money into the economy.
- In 1971, Nixon further cut ties with gold because rich foreigners were exchanging dollars for gold and depleting the U.S. gold reserves.
- Today, our money has worth because people have ‘faith’ that other parties will accept it. This is called ‘fiat’ currency. Kind of scary, right?
- Depending on the supply and demand of a particular country's currency, it has stronger and weaker worth.
- Printing money is a way to help a country in times of trouble, but this increase inflation - meaning the money is worth less. For example, with more money out in the world, it is worth less. This is why countries try to maintain inflation.
- Before we get too deep, the basic premise is that money has value that can be exchanged for goods and services. It’s harder to understand this value when it’s just a number on a computer screen.
Learn more from the full coursePersonal Finance Masterclass - Easy Guide to Better Finances
Your complete personal finance guide to understanding finances. Save more, invest smarter, reduce loans, retire earlier!
07:09:20 of on-demand video • Updated January 2018
- You'll be the master of your own finances.
- You'll know how to create a smart budget that helps you increase savings and reduce expenses.
- You'll increase your income with a promotion, new job, side hustle, and online income.
- You'll have a step-by-step process for reducing your loan and/or credit card debt.
- You'll know the process for buying a house and saving up for a down payment.
- You'll know how retirement works, how to save and invest for retirement, and how much you'll need to save and invest for a worry-free retirement.
- You'll learn how to retire early and achieve financial freedom!