What Does the Value of Money Mean?

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In general terms, the value of money is used to describe a basic level of respect and appreciation for the importance of making and having money. Often, this phrase is used by parents when teaching their children about the value of money. In more literal terms, the value of money is defined by how much a particular currency is worth at the present time.

Teaching Tools

  • Among the things parents are generally compelled to teach their kids is an appreciation for how money works and the correlation between money earned and money spent. In the Yahoo! Finance article "Teach Your Children the Value of Money," several steps are provided that convey how you can train kids to learn the value of money. Many parents give their kids allowances and help them experience the balance of spending and savings that becomes important when they are adults.

Economic Interpretations

  • For financial analysts, investors and many other entities in the business environment, the value of money is much more literal. Businesses are more concerned with how much of a particular good or service they can get in exchange for monetary currency. The more they get per unity of currency, the more valuable their money. Forex speculators and other investors are also concerned with the value of money because they trade based on expectations for how much given concerns will hold value, or lose it, in the future.

Inflation

  • Inflation is a common term in relation to the value of money. Inflation is the increased costs of goods and services relative to the value of money. In essence, when an economy is experience significant inflation, the value of each unit of currency you have is less. You cannot buy as much as you could before. Central banks use monetary policy to try to prevent inflation from getting out of control and making it difficult for businesses and consumers to afford to buy common items.

Deflation

  • Deflation causes the opposite economic effect of inflation. With inflation, prices of goods and services decline relative to the value of money. While this is good for consumers on the surface, severe deflation can cause problems as serious as inflation. Manufacturers, distributors and retailers that cannot charge adequate prices based on their investments in materials or inventory risk serious losses on earnings. This limits growth and expansion and can lead to job cuts.

References

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