Money makes the world go around

Money makes the world go around! But why is money so important? Money is central to everything we do on a daily basis. How many transactions do we make in a week? How many choices do we make because we do or do not have money? Money is important because of what it can do for us. It gives us the freedom to make choices; from basic choices related to what we will eat for dinner tonight to bigger choices, such as the city we can afford to live in. Money allows us to support our families, to give back to our communities and to support charities and causes that are dear to us. Money also allows us to get a good education, to secure a good job, to travel the world, to raise a family, etc. With money behind us, the world is our oyster! While money is not everything in life, and there are other things that we value more on a personal, social and societal level; money is one thing that we all need and that we all have in common. Every country in the world uses money as its main commodity to determine trades; to purchase goods and services, to collect taxes from citizens and businesses; to pay for healthcare, education and social services. All of these activities are included in each economy around the world, so money really does make the world go round!

But what happens when the value of money itself goes up or down? What if the value of money goes down so much that the money we have in our bank accounts is suddenly worthless? In this WebQuest, we will find out what happens in this situation. It may seem negative; but informed citizens are empowered citizens, so it is time to consider what can happen when our relationship and dependency takes a turn for the worse.

Key terms for you to consider in completing this WebQuest include:

  • Inflation: This refers to when there is a general increase in prices for goods and commodities; at the same time that there is a reduction in the purchasing value of money.
  • Deflation: This is where there is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%. While inflation reduces the value of currency over time, deflation increases it; meaning that you can now buy more goods and services for your money. It sounds great, but over time it can cause economic collapse.
  • Speculation: This is where trades are made in the expectation of a significant return; but the trade comes with risks and could backfire.
  • Profit: This refers to a financial gain; in business a profit is typically the positive difference between money that is spent on buying goods, operating or producing something and that which is earned.
  • Offset: Have you ever heard of the term ‘hedging your bets’? Well this is the official term for doing just that. Offsetting is when a trader assumes an opposite position in relation to an original opening position in the securities market.

You have been reading about inflation in the Eurozone in recent history; tracking the history of inflation since the economic recession in the 1980s and the economic crises of 2008. You want to learn more about what inflation could mean for you and your family in the future. In the aftermath of the COVID-19 outbreak, experts around the globe are talking about the economic recession, and even depression, that may follow. Some experts are talking about how it could be the worst financial crash since the 1930s Depression. The impact of the 1930s Depression was so severe due to a rate of negative inflation, or deflation, in the early 1930s, as well as the rapid growth in unemployment figures and the loss of personal purchasing power for all citizens. Did you know that the rate of deflation stood at -11.38% in 1932? This is an unprecedented level of deflation. But what happens on the opposite end of the scale? In 1920s Germany, we saw instances of hyperinflation in the Weimer Republic. At this time, Germany was struggling to pay war reparations from WWI, and the government’s response was to print more and more money. This resulted in the value of money being depleted; which led to hyperinflation. In Weimer Germany, in January 1923 a loaf of bread cost 250 Marks; this price rose to 200,000 million Marks in December of the same year. This is hyperinflation and it is terrifying!

You find some of the predictions that we too could see record levels of inflation very worrying, like the rest of us. However, this is mostly because you don’t know what it will mean for you and your family. You decide that you will research what inflation is, and to understand what it means for your family. Knowing how your family could potentially be impacted by inflation will help you to prepare for any potentially negative economic aftermath of the public health crises of 2020.

To complete this WebQuest, you will complete the following three steps.

  1. Research what inflation is?
  2. Determine what the role of banks is in relation to inflation?
  3. Understand what inflation means for you and your family?

After complete this WebQuest, I can:

Recognise the role of banks in money creation
Relate money and inflation
Reflect about the role of money in the economy
Compare commercial banks ads in your city
Analyse inflation effect on people’s lives
Identify the different economic agents
Evaluate how money is perceived by people
Advise good attitudes in both low and high inflation
Represent the family role in the economy

*If you answered NO to more than half of the statements, you should go through WebQuest again and acquire more knowledge and skills if you answered YES to almost all questions; congratulations on your great success!

Through this WebQuest, you have learned about our relationship with money and how true the phrase is that ‘money makes the world go round’. In some form, money touches all people and communities on this planet. Although it is a man-made instrument, and before money people traded coins or bartered, money and the financial system has become an essential part of the structure of our economies and societies. By using money to pay for and set prices for energy, education, healthcare, labour market, transport and logistics and our legal system, the functioning of our society has become so intertwined with money that we cannot function without it. Within the financial system, prices rise and fall. These fluctuations are impacted by the global demand for commodities, and are also influenced by consumer and trader behaviour. For example, in years gone by oil was considered to be liquid gold; however, we saw during the COVID-19 lock-down of 2020 that the price of oil fell to a negative, i.e. below one dollar per barrel. This price-drop shocked the world when it happened, but when the population of the world were not travelling to work, when whole businesses and industries ground to a halt, when people could fly or travel abroad, the demand for oil plummeted along with the price. This shows the role that we, the consumers, play in influencing our economy and the power of our consumer behaviour to cause shockwaves through the financial world. So while money does make the whole world go round, we also have a role to play in influencing how money works!

Through this WebQuest, you have learned a lot about where money comes from, the role that banks play in creating money, what inflation is and how banks also have a role in inflation; and you have also learned of some good habits and behaviours that you and your family can exhibit when our economies experience inflation and also deflation. For many people, money is something for them to stress over and worry about; but in reality, understanding what money is, where is comes from and how it supports our economies is so important. Developing your financial literacy so that you understand money and its role in our lives is something that you will carry with you for your whole life. It is important that money isn’t something you fear or stress about, but rather that you understand it, and you know how to interpret what happens in national and international banking, so that you can adapt your spending behaviours accordingly. Knowing what to do in times of inflation, or deflation, and understanding how these different financial trends can impact your personal and family finances is the first step in taking control of your finances and being prepared for anything that the global economy throws at us!