Where does money come from?

Where does money come from? Pretty big question, right? Let’s answer it together! You’ve probably already heard the expression, “Money doesn’t grow on trees,” which means it doesn’t just magically appear. It’s part of a cycle. Kind of like the water cycle. And just like water—which evaporates to form clouds before it comes back down as rain—money is also part of a cycle; one in which we all play a role. Let’s look at an example. Say, of a chef. Every week, he gets paid a salary to come up with tasty dishes. He deposits his salary into an account at a financial institution. When he needs money, he can take out cash at the ATM. He can then use that cash or his payment card to pay for things like groceries, clothes and movie tickets, and pay different bills, like his internet. But he also keeps some of his money in his account so he can save for future goals or be prepared for the unexpected. This is what we call savings. The financial institution is where lots of people keep their money to make sure it’s safe—like the chef! The financial institution will also lend this money to someone who wants to buy, say, a house or a car. This is what we call a loan. And that’s how money circulates. Then, one day, it comes back to the financial institution in the form of someone else’s salary or savings. It’s just like the water cycle! This money cycle is the foundation of the economy. It may not be magical, but it sure is impressive! The next time you see your parents paying for groceries or taking out cash at the ATM, you’ll know that they’re also helping circulate money. Well done! You’ve now finished watching our video on the money cycle.