Where does money come from?

Where does money come from? (1 min 38 s)

Added on November 21, 2013

Description

The flow of money is a cycle in which everyone plays a role.

  

Where does money come from? (1 min 38 s)

Added on November 21, 2013 | Desjardins Group

Yesterday, Aiko went shopping with her dad, who withdrew money at his financial institution's ATM.

It got her thinking.

Why do financial institutions give money? Do they create as much money as we want? She has so many questions.

Her dad tells her:

“Money circulates; it doesn't magically appear. It's a little like the water cycle.”

Aiko's dad is right. Rain is not magic! The water in rivers evaporates from the sun's heat and forms clouds. And money follows a similar cycle.

Money travels in a cycle where Aiko's dad plays a role.

He's a bus driver and every week, he receives a paycheque.

This money is deposited in a secure account at his financial institution. He uses it to buy things like groceries, clothes and movie tickets, and to pay bills like Internet at home per example.

He also leaves a portion of his money in his account for future projects and to protect himself against unforeseen circumstances. This is what we call saving.

The financial institution, on its end, keeps the savings of many people like Aiko's dad. It lends this money to other people who want to buy big-ticket items, like cars and

houses. This is what we call loaning.

This way, money continues to follow its cycle.

Aiko's dad's money, just like everyone else's, continues to circulate, forming the very basis of our economy.

Aiko is happy. She now understands that there is nothing magic about money.