WHAT IS MONEY AND WHY IS IT IMPORTANT?
Imagine living in a world where money doesn’t exist. If you wanted a cellphone, you’d have to trade something for it—maybe a basket of apples or exotic spices. But what if the person selling the phone didn’t need apples or spices? You’d be stuck! That’s exactly why money was invented—to make buying, selling, and exchanging goods much easier.
Let’s explore what money is, how it works, and why it’s such an important part of our lives today.
So, What Is Money?
Money is what we use to buy things—like toys, clothes, food, or services such as a haircut or a movie ticket. It can be in different forms:
Physical money: paper notes and coins
Digital money: credit cards, online payments, or mobile wallets
Money serves as an official medium of exchange in every country. For example, India uses rupees (₹), the USA uses dollars ($), and so on.
Interestingly, most money is printed and issued by a country’s central bank—like the Reserve Bank of India (RBI) or the Federal Reserve in the USA. These banks also decide how much money should be printed and kept in circulation.
Why Can’t We Just Print More Money?
A common question people ask is: If money helps people buy what they need, why can’t governments print unlimited money and give it to everyone?
The answer lies in inflation.
If too much money is printed without enough goods and services to match it, prices go up. For example, if everyone has ₹10,000 more but the number of goods remains the same, prices for food, clothes, or petrol might double or triple! This is why printing money endlessly can reduce its value and hurt the economy.
Governments must carefully control the supply of money to keep it valuable and stable.
Why Did We Move Away from the Barter System?
Before money existed, people used the barter system—exchanging goods directly. For example, you might trade rice for wheat or cloth for salt.
But this system had major problems:
Both people had to want what the other was offering.
Some items were bulky, perishable, or hard to carry.
It was difficult to set fair exchange rates.
Money solved these problems. It became a universal medium of exchange—easy to carry, store, and use. Today, digital money makes transactions even more convenient.
What Are the Functions of Money?
Money serves four main functions:
1. Medium of Exchange – It allows people to buy and sell things easily.
2. Measure of Value – Prices help us compare the value of different items.
3. Standard of Deferred Payment – We can buy now and pay later (e.g., loans).
4. Store of Value – We can save money for the future.
What Can We Do With Money?
Money gives us choices:
Spend: Buy things we need or want—like food, clothes, or gadgets.
Invest: Put money in a bank, stocks, or business to earn more.
Save: Keep money aside for future use, emergencies, or big purchases like a bicycle, a computer, or education.
Help: Donate to charities or assist those in need.
Learning how to manage money is a valuable life skill. It helps us become responsible, independent, and thoughtful in the way we spend and save.
Final Thoughts
Money is more than just paper or coins—it is a tool that brings convenience, choice, and opportunity. It replaced the ancient barter system, helped civilisations grow, and continues to play a major role in our modern digital world.
Understanding money helps us make smarter decisions, not just for ourselves but also for helping others. So whether you're saving your pocket money or planning a future purchase, remember—managing money wisely is the key to financial freedom.
Key Terms:
Money: A tool to buy goods and services.
Consumer spending: Using money to purchase items.
Investing: Using money to earn more over time.
Inflation: Rise in prices due to too much money.
Saving: Setting aside money for future use.
