Bank at School - Lesson 4          Previous Lesson    Next Lesson
Where Does Money Come From?                                    

Introduction
In Lesson 3 we looked at what financial institutions do and some of the basic services they offer. Students also participated in their first bank day, with many opening savings accounts for the first time.

Lesson 4 will examine where money comes from; how it is physically created and the various ways of obtaining it.

Objective
Explain how money is made and circulated. Introduce students to the concept of income.

Lesson Material  
Over the last few weeks we've examined the role of money as a medium of exchange, looked at why it's important to save a portion of the money you receive for future purposes, and discussed why financial institutions offer a safe and convenient place to keep savings as well as other money. Today we shall investigate how money is physically created and the more common ways people obtain it.

Minting Money
The U.S. Government is responsible for creating and monitoring the supply of available currency in this country. At one time, financial institutions were permitted to issue their own paper bills. Financial institutions were allowed to issue their own money as long as they kept a portion of the financial institution's savings with the government.
However, financial institutions soon began issuing currency with so many different face values that the situation became unwieldy. At one point, there were over a thousand different types of paper money in circulation.

In 1877, the government stepped in and created a single monetary system. From 1877 on, all paper money has been issued by the U.S. Treasury Department. The money is produced at the Bureau of Engraving and Printing in Washington, D.C. The coins we use are produced at government mints. These mints are located in Philadelphia, Pennsylvania; Denver, Colorado; San Francisco, California.
In addition to manufacturing money, the federal government is responsible for monitoring how much money is in circulation. Approximately $393 billion is in circulation today.

As money wears out or is damaged, it is returned to the treasury through a network of intermediaries (most people will return damaged money to a local financial institution, which in turn will give it to a Federal Reserve Bank). Federal Reserve Banks shred damaged or worn out money daily to the tune of approximately $60-80 million a year. The Treasury only prints enough new money to replace the amount of money that was shredded or destroyed. The average life of a one dollar bill is eighteen months.
{Teachers: The Federal Reserve Bank system plays an important role in regulating and managing the amount of money circulating in the nation's economy. Adding them to the discussion would create a more thorough background on how the money supply is managed. Please feel free to elaborate on them if you have time.}

Sources of Income
Now that we've explored how money is physically created, let's turn our attention to the various ways people can acquire money. The amount of money that an individual, family or business receives over a specific period time period is called income.

For most people, employment is the primary source of income (remember the barter system?). As we shall see in the next lesson, the work force is comprised of millions of individuals utilizing a myriad of skills. But not all people derive their income from being employed.

Many people receive retirement income. Retirement income generally consists of a pension and/or social security. A pension is a long term savings account to which employees and their employer both contribute. Pensions are a reward for years of service on the job.
People may also receive income from either the federal or state government. Government programs which distribute money to individuals are called entitlement programs. Some examples of entitlement programs include: social security, veterans benefits, unemployment compensation, and assistance to families with children (commonly known as welfare).

The purpose of entitlement programs is to provide temporary, minimal assistance to people who need help obtaining basic necessities such as food, shelter and medical care.

Suggested Activity

• Check coins to see when they were minted.
• Do you know anyone who has retired and receives a pension?
• Discuss the ways people receive money. Discuss your impressions and attitudes about entitlement programs. What is the appropriate role of government to help people who don't have adequate income?

Suggested Homework

• Write a brief description of the various sources of income.
• Research what person is on each denomination of coin and paper money. Find out what is the highest denomination in circulation as well as which bills have been discontinued.

Glossary
Entitlement Program - A government program which provides money to help subsidize individuals with a common affiliation or problem.
Federal Reserve Bank - The central bank of the United States government, responsible for formulating and carrying out the government's monetary policies.
Income - The sum of money received in a given period by an individual.
Mint - Building where the government makes coins.
Pension - Income received from a company after a person retires.

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