The Functions and Characteristics of Money

The Functions and Characteristics of Money
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  • 0:01 A Closer Look at Money
  • 0:39 Functions of Money
  • 2:15 Characteristics
  • 4:15 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting
Money makes the world go around. In this lesson, we will learn more about money. We will break it down into its separate functions and look closer at its many characteristics.

A Closer Look at Money

There you are, shopping at your favorite store. While there, you find a pair of shoes you absolutely cannot live without. After searching for your size, you grab the box and head to the checkout lane. After the associate rings up your shoes, she asks you to pay $45.09. You dig into your wallet, pull out three 20-dollar bills, and hand them to the associate. While you obviously realize you paid for your new shoes using money, what you probably did not think much about is the characteristics of that money or the functions that money possesses.

Functions of Money

We, as consumers, use money so often that we rarely stop to think much about it. We know that we must have it to pay for goods and services, but how many of us realize what the functions of money are? Well, let's take an opportunity to look deeper at money and its functions. For this lesson, we will concentrate on the functions of medium of exchange, unit of account, and the store of value.

Medium of Exchange: What this means, is that we use money to purchase goods and services. Before the introduction of money, barter was the main process to obtain goods and services. For example, one may trade fur for a cow. However, now that we have money, we can use it as a medium of exchange to purchase those must-have shoes. We know that when we go into a store, that the store will accept our money as a form of payment because it is widely accepted as a medium of exchange.

Unit of Account: When we go to purchase items, there is a standard for measuring the worth of those items. This is what we call a unit of account. Basically, if an item costs $200, we understand how much that is. If the item costs 200 seashells, then there may be confusion.

Store of Value: What this means is we can put $25 in our piggy bank, and a month later, the value of the money will still be $25. Money is able to retain its value over time.

Characteristics

Now that we know what the functions of money are, it's time to take a look at its characteristics. In general, there are four main characteristics that money should fulfill: durability, divisibility, transportability, and inability to counterfeit. Let's take a closer look:

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