How are your parents teaching money to you? It may have been through your first piggy bank. Hopefully, you have been consistent in putting money into it. However there is a big difference between your piggy bank (money box) and a real bank and today I want to show you how a real bank works.
The first thing you need to know about a bank is that it is a place where people store their money. Unlike your money box, the banks will actually pay you for keeping your money with them. This payment is called interest. Each month banks will pay you a small percentage of interest which is determined by how much money you have in the bank. So in theory the more you have in the bank the more interest you will earn.
You're probably thinking this sounds good but why would they pay me just for storing my money there?
This leads to the second thing you need to know about a bank. They actually allow you and others to borrow money from them as well. They'll pay you to keep your money there so they can use that money to let other people borrow to purchase things they need. Let's say someone needs to buy a new house, they will come to the bank to borrow that money because most people can't afford to pay cash for the whole house. The bank will give them the money and they must pay it back. However when they pay it back they must pay back a little more than they borrowed, this is also known as interest. The difference in the interest is that the person who borrows the money will usually pay a higher interest, which will allow the bank to pay you for using your money.
Let me give you an example to help you. You have $10 and decide to open a savings account at The Children's Bank. The bank agrees to give you $1 for each month you keep your account open. At the same time Billy wants to buy a bike that costs $15 but he only has $10. Billy decides to borrow $5 from the bank to get the bike now. When it's time to pay back the bank instead of paying $5 he has to pay them back $7. This is how banks earn their money and are able to pay you interest every month.
To sum it up a bank is simply a place where money is stored and borrowed. You earn interest for keeping it there. The banks earn interest when people borrow it and pay it back. Remember the piggy bank is nice but it doesn't pay you for keeping your money there so if you haven't done so get out there and get your first savings account.
Looking for more ways to teach your kids about money? Visit http://www.moneytoolkits.com and claim your FREE copy of moneySMART$ emagazine written by Nicole Clemow and the team at Money Toolkits. Nicole is an international author and speaker on the subject of teaching kids about money and how to make it.
By Nicole Clemow
The first thing you need to know about a bank is that it is a place where people store their money. Unlike your money box, the banks will actually pay you for keeping your money with them. This payment is called interest. Each month banks will pay you a small percentage of interest which is determined by how much money you have in the bank. So in theory the more you have in the bank the more interest you will earn.
You're probably thinking this sounds good but why would they pay me just for storing my money there?
This leads to the second thing you need to know about a bank. They actually allow you and others to borrow money from them as well. They'll pay you to keep your money there so they can use that money to let other people borrow to purchase things they need. Let's say someone needs to buy a new house, they will come to the bank to borrow that money because most people can't afford to pay cash for the whole house. The bank will give them the money and they must pay it back. However when they pay it back they must pay back a little more than they borrowed, this is also known as interest. The difference in the interest is that the person who borrows the money will usually pay a higher interest, which will allow the bank to pay you for using your money.
Let me give you an example to help you. You have $10 and decide to open a savings account at The Children's Bank. The bank agrees to give you $1 for each month you keep your account open. At the same time Billy wants to buy a bike that costs $15 but he only has $10. Billy decides to borrow $5 from the bank to get the bike now. When it's time to pay back the bank instead of paying $5 he has to pay them back $7. This is how banks earn their money and are able to pay you interest every month.
To sum it up a bank is simply a place where money is stored and borrowed. You earn interest for keeping it there. The banks earn interest when people borrow it and pay it back. Remember the piggy bank is nice but it doesn't pay you for keeping your money there so if you haven't done so get out there and get your first savings account.
Looking for more ways to teach your kids about money? Visit http://www.moneytoolkits.com and claim your FREE copy of moneySMART$ emagazine written by Nicole Clemow and the team at Money Toolkits. Nicole is an international author and speaker on the subject of teaching kids about money and how to make it.
By Nicole Clemow
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