What Is Money?

A straightforward question that we probably didn't even think we needed to ask as we just get thrust into this world after school where you need to get a job to earn money to buy things.

However, economists generally agree that money is defined as the following:

• Store of value

• Medium of exchange

• Unit of account

Let's break these 3 points down further.

Store of value

Say that you don't want to spend your money straight away but you want to save it for a later date, assuming that, for example, £100 now will still be able to buy you £100 worth of the same goods or services in the future - this is the concept of store of value.

However, as you have probably discovered, our money is not the greatest store of value - find out more about why that is here

Medium of exchange

In order for businesses to sell their goods and services, or customers to buy these goods and services, both parties need a way to facilitate this transaction, lest we start bartering like we did in the very early days!

Well, would you believe it, that's exactly what money is! It's a medium through which goods and services can be exchanged between buyers and sellers.

Unit of account

Now we have a thriving marketplace of goods and services, all waiting to be exchanged, how do we value these products?

It depends where you are in the world but for us in the United Kingdom, we use Great British Pounds (GBP), £, to measure the market value of goods and services.

Pounds are our unit of account, Euros are what you'd use in Europe and US Dollars are what you'd use in the USA as the main examples of money.