What is money and why do we need it?

In the morning your mother sent you to the bread shop. You give the money, and the baker gives you a hot loaf. It is all over in a minute. But think about it: if you had no money in your pocket, how would you get the bread?

What would happen without money?

Without money, people would have to swap one thing for another. This is called barter. It means "I give you apples, you give me bread".

The problem is that the baker may not need apples. Maybe he needs eggs. So first you find a neighbour with eggs and swap the apples for eggs. Then you swap the eggs for bread. For one loaf you walk around the whole neighbourhood.

Money solves this problem. Everyone accepts money: the baker, the butcher and the barber. So you sell your apples at the market for money. Then you use that money to buy whatever you want.

Researchers believe that the world's first coins were struck in the 7th century BC in the kingdom of Lydia, in Asia Minor. You can read more about this history in our "Financial history" article.

What jobs does money do?

Economists usually name three main functions of money. Let us see them in one table:

Apples rot in a week, and bread goes stale. Money does not rot, so you can collect it over time. This is the handiest thing about money. Just remember one thing: if prices go up over time, saved money buys less than before.

How do we use money?

For example (the figures are hypothetical), your mother gave you 50 000 soum and sent you to the market:

• 3 loaves of bread at 4 000 soum each: 12 000 soum;
• 2 kg of potatoes at 5 000 soum per kilo: 10 000 soum.

In total you spent 22 000 soum. You have 50 000 − 22 000 = 28 000 soum left. You bring it home and give it back to your mother.

Now another example. Every day you do not spend 5 000 soum of your pocket money. You put it in a small box. After 20 days the box holds 5 000 × 20 = 100 000 soum. With this money you can buy yourself a book or a ball. This is what the "saving" job of money looks like.

What forms does money take?

Today money is not only paper notes or coins. Money on a bank card or in a phone app is real money too. You cannot hold it in your hand, but you can still pay with it in a shop. The money of Uzbekistan is called the soum.

Remember: money itself is not food or clothes. It is only a trusted tool that makes exchange between people easy.

In the next lesson

In the second Basics lesson we will get to know the place where money is used: what a market is and who meets there.