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entries in accounts with no exchange of physical currency . This trend began in the 1950s and 1960s, with the invention of credit cards, and continues through today where most modern payment systems now operate entirely electronically. Money is moved in and out of buyers’ and sellers’ bank, checking, and credit accounts by EFT (electronic funds transfer) . EFTs include debit or credit card payments, like when you use a card to buy a sweater at the mall, automated payments like auto-deposits of paychecks, and autopay of monthly bills, like utilities and house payments. The Fed tracks trends in noncash payments in the U.S. The trend is clearly to a cashless society . A recent study showed that only seven percent of U.S. transactions are in cash , and that number is declining. Sweden leads the U.S. in the embrace of electronic funds. It is anticipated that Sweden will be a completely cashless society by 2030. Where Does Money Come From? Money issued by a government is called legal tender . In the last lesson, you learned that legal tender (money) is issued in limited supplies in order to maintain a stable value. Understanding some of the concepts related to value stability goes a long way toward financial literacy. One is that it’s important that money is scarce – but not too scarce. If there’s too much money in the system, its value will decline, making our dollars worth less, and unable to buy as much stuff. If there’s too little money in the system, it becomes hard to get for things like loans to buy houses, operate businesses, or invest. That causes the economy to stop growing. When that happens, companies can fail and jobs are lost. Keeping the money supply at optimal levels is critical. Another important thing to know is that the government “banks” responsible for deciding how much legal tender to issue and when to issue it, are called central banks, reserve banks , or monetary authority . Every country or economic unit in the world has a reserve bank, central bank or monetary authority dictating its monetary policy and supply. In the U.S. it is the Federal Reserve Bank . The central bank for the Eurozone is the European Central Bank (“ECB”) . (Advise students they will learn more about the ECB and the Eurozone in the next lesson.) The Fed and the ECB are powerful, government-created but independent institutions, uber-influential in global commerce. In addition to deciding whether and when to issue money, they set and enforce very important monetary policies such as regulating interest rates and overseeing banks. When the bosses of the Fed and ECB speak, business people and governments all over the world listen intently. They are the voices of authority for the two largest economies in the world. What they say effects the value of money and almost every aspect of commerce around the globe. The central bank for the United Kingdom is the Bank of England . In China, it is The People’s Bank of China ; in Japan, it is the Bank of Japan . These institutions are frequently mentioned in the financial news. Do not confuse central banks or reserve banks with ordinary commercial banks that have branches, take deposits and make loans. They are powerful policy-making institutions that supervise their country or economic units’ money supply, and monetary policies. To be financially literate, you should have a basic undestanding of the roles and powers of central banks. SLIDE 4I PRODUCT PREVIEW
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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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