Book excerpt: How to teach your kid about money management

Let’s talk about the modern world where we live, where people buy candies from the store and go to the movies on the weekend. Ever wondered how the money exchange happens during these transactions? Through paper notes and coins backed by the government. This form of money is called Fiat money, it is backed by the government and is used across all modern economies. And in today’s day and age, in addition to using paper money or physical currency, one also can also make digital payments. These include online transfers like UPI (Google Pay), Net banking, online wallets like Paytm, etc. 

But how does one earn this money? By either selling some goods or working for someone i.e., providing a service. The money you earn can be saved in bank accounts and can be later used to buy candies and movie tickets or pay bills and rent.

Money: A tool that solved it all
Most problems we faced with the previous ways of exchange or transaction were solved by Fiat Money. It came with its own set of benefits. Let’s read about them and see how the need for a better system of exchange took the evolution of money to where we are today.

1. Medium of Exchange
   The primary function of money is to act as a medium of exchange. Fiat money removed the limitation of ‘double coincidence of wants’ (a situation where both the seller and buyer agree to sell and buy each other’s goods) and made the exchange easier.
2. Unit of Account
   It is a standard numerical value attached to goods and services so that the transactions appear fair and justified.
3. Store of Value
   This function helps individuals conserve their wealth without fearing the loss of its value or durability. A typical example would be depositing money in the bank to buy goods and services later. Value of the money shall remain even after several years have passed.
4. Standard of Deferred Payment
   Money also allows you to purchase goods right now and pay for them later on. This is known as deferred payments. For example – taking loans from friends and family and paying them over time.

Let’s See What All We Can Do with Money 

Goods
Items that can be bought and used.
Physical goods 
Digital goods 

Services
Actions or services provided by other people to us.
Physical services 
Digital services 

What can money buy? 

General features of a currency note

Let us now look at some interesting characteristics of modern paper currency. 

Security Thread 

These embedded threads have the note’s denomination inscribed on them which can be visible when you hold up the note in front of a light source.

Serial Number

A unique serial number is printed horizontally or vertically on the note. It can be found either on the front or on the back of the note.

Visual Aid

Different denominations have different kinds of raised lines or dots printed on them. These dots can be felt by visually impaired people to detect the different currency notes. 

Watermark

Image and the value numeral can be seen from either side of the note when held up in front of bright light.

Colour change

Elements like numbers on the banknote are printed with a colour-changing ink. You’ll notice a different colour every time you tilt the note. 

Excerpted with permission.

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