Teacher’s guide - B
MONEY AND BANKS
B
1. SUMMARY In this section, you will learn the different types of trading such as bartering, ‘commodity money’, and ‘fiat money’. You will examine their differences, advantages and disadvantages of each method. You will also learn about the world of banking, what it means, why they are used and how banks make money.
2. KEY CONTENTS
What is money?
Can anything be used as money?
Discuss the advantages and disadvantages of different kinds of money.
World of banking, what it means, why they are used and how banks make money. Teacher, as a warm-up, ask Ss: what is money? / can anything be used as money? can we use stones or corn instead of coins and bills? Before Ss read the text, ask them to read the following sentences and try to figure out the better word to complete each sentence. Do the first one as an example.
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Choose the correct word or phrase. 1.
Every purchase in a store is an exchange. A product is traded / represented for money.
2.
Barter means the direct exchange / guarantee of one good for another.
GT4 | Unit 10 | Teacher’s guide - B
3.
In substitution for bartering, people started to use commodity money / fiat money, money such as gold and silver.
4.
Gold, silver and copper are a commodity / currency that everyone accepts as valuable.
5.
Gold, silver, and copper were all valued for their uses, and they were highly regarded because of their scarcity / abundance.
6.
Gold, silver and copper have intrinsic / extrinsic value.
7.
Silver and gold have no use value / use value. value They can be used to make things. Silver is used as a backing for mirrors and in making photographic films. Gold is used primarily in jewelry.
8.
Paper money, like banknotes and coins, has no value in itself. It has only the value that a government says it has. It’s called commodity money / fiat money. money
9.
Coins and notes are used to swap / represent value.
10. Nearly every country in the world uses paper money. Governments print currency / commodity and declare it to be money.
MONEY Every purchase in a store is an exchange. A product is traded for money. In preindustrial societies, goods and services were exchanged directly, without money, in a process called barter. Mr. A exchanged his product, shoes, for a shirt made by Ms. B. Or both exchanged their products, shoes and shirts, for ten pounds of wheat grown by Mr. and Mrs. C. This process of exchange was very simple. It resembled the way some people trade baseball cards or comic books today.
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Unfortunately, barter can quickly become complicated. If Mr. A and Ms. B both want wheat, but Mr. and Mrs. C do not want shoes or shirts, how can an exchange be made? One solution is to find a fourth party, Mrs. X, who wants shoes and shirts. She, in turn, may raise chickens—something Mr. and Mrs. C do want. She exchanges her chickens for shoes and shirts with Mr. A and Ms. B. They then take the newly acquired chickens to Mr. and Mrs. C to exchange them for wheat. This double set of exchanges is somewhat inconvenient, but it is workable. In a modern society with millions of people and hundreds of thousands of products and services, the barter system becomes impossible. The complications would be endless and overwhelming. To get rid of barter and to simplify exchange, money was invented. THE EXCHANGE PROCESS Barter is a means of direct exchange of one good for another. The use of money creates an indirect exchange. A family spends money to buy a car. This common transaction is easy to understand. What is not ordinarily noticed is that the person who sells the car for money is at the same time using the car to buy money, which is no more than a substitute for all possible products and services. Money was invented more than 4,000 years ago. People who wanted to trade goods and services gradually realized that exchange would be easier if there were some single commodity that everyone would accept as valuable. There was something — precious metal, or three precious metals, to be exact. Gold, silver, and copper were all valued for their uses, and they were highly regarded because of their scarcity. Since gold was the scarcest, it was usually — but not always — more highly valued than the other two. Just like today’s money, gold and silver have advantages over other kinds of goods. First, they have universal purchasing power — everyone agrees they are valuable. Second, they can be processed into different sizes and weights to stand for a variety of different values. Third, they are fairly durable; they will not rust or decay; they can be stored for long periods of time. Fourth, since even small amounts of these metals are valuable, it is easy to carry them around, just as it is easy to carry coins in a pocket or purse today. Fifth, silver and gold—but especially gold — have never lost their exchange value. Even after 4,000 years, gold is still acceptable in any civilized society as money. Its universal acceptability made it the medium of exchange in long-distance trade. FROM GOLD TO PAPER MONEY Silver and gold have what is called use value. Silver is used as a backing for mirrors and in making photographic film. Gold is used primarily in jewelry. When silver and gold are used as money, they have exchange value, as well as use value. Silver and gold are called “hard money.” This term does not only refer to their solidity as metals. 4
GT4 | Unit 10 | Teacher’s guide - B
It suggests that silver and gold are real money, in contrast to paper money. They have inherent value. Gold and silver were assigned exchange value by people because of their scarcity and because they were potentially useful in other ways. Another term for hard money is specie, a Latin word that refers to the commodity nature of gold and silver. In other words, gold, silver, bronze, copper and other metals are examples of commodity money money. Paper money is not hard money. It has no value in itself. It has only the value that a government says it has. It is not commodity money. There is no limit to the amount of paper that can be manufactured, as long as trees grow. Paper is not scarce, though it has many uses. Paper money is called fiat money money. The word “fiat” is a Latin verb form that means “let it be.” Nearly every country in the world uses paper money. Governments print currency and declare it to be money. Its use is mandated as both legal and necessary as the proper medium of exchange within a nation. The use of gold and silver in exchange has generally been abandoned in favor of paper bills and coins made of cheaper metals. Gold and silver are now treated as commodities, on a level with soybeans and wheat. SOURCE: https://kids.britannica.com/students/article/money/275898 (Adapted)
Pair Ss up. They should fill out the table with advantages and disadvantages of different kinds of money. Do the first one as an example: Advantages of bartering.
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Complete the table with information from the text. EXAMPLES Bartering Commodity money
swapping shoes and shirts for wheat
gold, silver and copper
Fiat money notes/bills and coins
ADVANTAGES
DISADVANTAGES
Simple process of exchange
It can become complicated; double set of exchanges is somewhat inconvenient
Have universal purchasing power; can be processed into different sizes and weights to stand for a variety of different values; are fairly durable; has value in itself
too expensive, scarce and heavy. it’s limited
it’s limitless; not scarce; has many uses
has no intrinsic value; its value depends on the government
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3 Discuss the following with your partner.
What do banks do? Make a list of all the bank services. Compare your list with other groups. Teacher, before Ss complete the sentences with the words/ expressions from the box, go over them and give a brief explanation or example of each one.
4 Complete each sentence with a word or phrase
from the box.
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interest
ATM
cash
loan
checking account
purchase
deposit
fee
pay off
interest rate
withdraw
owe
1.
Interest ____________________ is extra money that you receive if you have invested a sum of money in a bank.
2.
cash instead of using a debit or a credit card. Some people prefer to pay in _____________
3.
pay off If you ___________ someone, you give them the amount of money that you owe them.
4.
ATM An ____________ is a machine that gives customers money when the bank is closed.
5.
withdraw When you ____________ money from a bank account, you take it out of your account.
6.
deposit When you ___________ a sum of money, you put it into a checking or savings account.
7.
checking account is a personal bank account which you can take money out of at A ________________ any time using your check book or debit card.
8.
purchase When you _________________ something, you buy it.
9.
owe If you _________________ money to someone, they have lent it to you and you have not yet paid it back.
GT4 | Unit 10 | Teacher’s guide - B
loan 10. A __________________ is a sum of money that you borrow. fee 11. A __________________ is a sum of money that you pay to the bank every month to have a checking account. interest rate 12. The __________________ is the amount of interest that must be paid. It is expressed as a percentage of the amount that is borrowed or gained as profit.
BANKS A bank is a business like any other business except that it deals in money. A bank holds money for individuals, businesses, and governments. Like all businesses, it has to make money too, and it does this by charging interest on any money that is loaned out. Banks are very important to a country’s economy because they help money be exchanged for services and help businesses start up and survive. Banks use the money that individuals and companies deposit to give loans for the purchase of homes, cars, furniture, farms, and businesses. The person who makes a deposit into a savings account receives interest on that money. However, banks charge a higher interest rate from borrowers of this money. In other words, the rate they pay savers is less than the rate they charge borrowers. This difference between what they pay savers and what they charge borrowers is how banks earn most of their money.
TYPES OF ACCOUNTS CHECKING ACCOUNTS People use checking accounts so that they don’t have to go to the bank to get their money. It makes it easy for them to make purchases. The bank charges a fee to have a checking account – one more way the bank makes money. Today, most people use a debit card instead of a check to buy something. If people want to withdraw money from their checking accounts, the banks provide ATM machines so that people can get cash any time of the day or night and use it instead of a debit card.
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SAVINGS ACCOUNT This used to be a good way to save money because the bank would pay you interest for the privilege of using your money. Today, the interest the bank pays on savings accounts is almost zero, unless you have an extraordinary amount in the account, and you promise not to use it or need it for a certain length of time. CREDIT ACCOUNTS The bank will allow you to make purchases on your credit card all month and charge a very high interest rate. The banks are counting on people not being able to pay off the account within the month so that they can charge more interest. They are hoping you can never pay what you owe and will keep buying and buying. It is so much easier than finding the cash to make your purchases and most people buy more than they need and buy things they really don’t need at all. SOURCE: https://www.coolkidfacts.com/how-banks-work/#more-12087 (Adapted)
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Now read the text again and discuss these questions in your group. 1.
How do banks earn money?
2.
Why do banks give loans? Give some examples.
3.
Why do people save money in a savings account? Is it still a good way to save money?
4.
What is a checking account? Is it free to have a checking account?
5.
If you have a checking account and want to withdraw some money, where can yougo? What do those 3 letters mean?
The difference between what banks pay savers and what they charge borrowers is how they earn most of their money. They give loans for the purchase of homes, cars, furniture, farms, and businesses.
Because the bank pays them interest for the privilege of using their money. Nowadays, it’s not a good way to save money because the interest the bank pays on savings accounts is almost zero They give loans for the purchase of homes, cars, furniture, farms, and businesses. It’s a type of account where people don’t have to go to the bank to get their money. It makes it easy for them to make purchases. No, it’s not free. The bank charges a fee.
You can go to an ATM machine. The 3 letters mean: Automated Teller Machine.purchases. No, it’s not free. The bank charges a fee.
6.
What is the danger of a credit account? In other words, what should you avoid when using a credit card? The danger is the very high interest rate charged by the bank. So, you should avoid paying your credit card bill after the due date because you will be penalized by a very high interest rate.
Teacher, monitor Ss’ discussion and offer help when necessary. After that, ask Ss some personal questions about banks and money: if they have a bank account, credit card, investments, etc.
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GT4 | Unit 10 | Teacher’s guide - B
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The convenience of credit cards comes at a price. Credits cards are one of the ways banks have to maximize their profits. First, discuss these questions with your partner.
Have you ever had a credit card? What are the dangers of using a credit card pay with instead of money? How do banks make money from credit cards? Teacher, introduce the discussion by asking the first question to some Ss. Then, pair them up. They discuss the other questions.
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Credit Cards Look at these notes about the video sequence you are going to watch and see if you can guess the word or expression that completes the sentences. 1.
Using a credit card is similar to taking out a loan / debit.
2.
People who use credit cards will receive a statement / receipt each month telling them the total amount due.
3.
According to the video, one possibility is to pay the full amount due on or before the final date / due date. date
4.
If you pay the total amount on or before the due date, you will avoid paying interest / taxes.
5.
It’s always the best to pay off / pay out your credit card debt to avoid interest.
6.
Making more the minimum payment is important because it saves you money in the short run / long run. run
7.
The first idea of a credit card dates back to 1949 / 1959. 1959 9
8.
The first credit card created was the Diners Club / Visa. Visa
9.
Later, another card was created, called BankAmeriCard / America Card, which did not require people to pay it off by the end of the month.
10. There two kinds of credit card companies. On one hand, there is the bank: the issuer / the provider. 11. One way credit card companies make money is by charging the retailer / the customer a transaction fee. 12. One reason the stores accept paying the transaction fee for credit card companies is because of customer complaint / customer convenience. convenience 13. One way credit card companies make money is by charging interest. Another way is by charging fees / taxes. taxes 14. The companies make more money with a specific kind of customer: the debtors / the revolvers. revolvers
Now watch the videos and check your answers. Video 1: How does a credit card work?
http://bitly.ws/jugE Video 2: How credit card companies make money
http://bitly.ws/jugG 10
GT4 | Unit 10 | Teacher’s guide - B
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Discuss these questions with your group.
What are the dangers of using a credit card to pay with instead of money? Some of the dangers are: - Not paying the total amount on the due date and be charged with interest. - Having the misconception that it is not real money and spend more than necessary.
How do credit card companies make money?
By charging interest from customers (revolvers); By charging transaction fees from merchants (shops).
Why are the revolvers the best clients for credit card companies? Because they don’t pay the total amount of their bill on due date and have to pay interest rates for the credit card companies. After, Ss discuss the questions in pairs, have a discussion with the whole group.
2 Write a promotional leaflet for a new credit card
The aim of the leaflet is to attract potential customers for this new credit card by offering many advantages (perks) so that they can become clients.
Use an advertisement style (language, and layout).
Use images in your leaflet (not only words).
Look at the following tips to help you.
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Promotional leaflet Create a catchy headline to call your prospects’ attention. Make a list of the different perks the credit card offers such as reduced annual fees, rewards rate, cash back, discounts in different services (Netflix, insurance, etc.). Include other services that can become handy for your prospects such hotel bonuses, travel insurance, VIP lounges at airports, automobile services, etc. Say how the potential customers can contact the credit card company (e-mail, web page, phone number, local branches, etc.). Do some research on credit card advertisement campaigns to get some inspiration.
Write 150-200 words.
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GT4 | Unit 10 | Teacher’s guide - B