Financial Literacy Lesson no-2

Money keeps losing its value so convert it into assets.
- Vinita. Pal

Before you start reading this my suggestion to you all, close your eyes, take a deep breath, be still, and allow yourself to drift back to the historic day of 8th November 2016. By now, some of you might be feeling uneasy reliving the same experience, and some of you might have experienced a spontaneous smile on your face thinking about the chaos that we all had to undergo due to demonetization. Now open your eyes. Feel free to share your experiences in the comment section below. This is for all my Non- Indian friends who are least aware of the 8th November 2016 demonetization in India — Demonetization.

You all might be wondering how I am suddenly reminded about that event or why I am talking about the same now. To answer these questions, I wish to draw your attention to what exactly we were forced to do after the enforcement of demonetization. We were told to exchange our currency notes with denominations of 500 and 100 within a short stipulated time period. How can we forget all the tensions, and worries we all had been through at that point in time? Don’t get me wrong. This is not to alleviate the pain from the past. This is just to bring to your notice the minuscule difference between currency and money.

Let’s start first by looking at what the dictionary has to say about these two terms. Oxford dictionary defines currency as a system of money in general use in a country. Money is defined as a means of payment, wealth. Now let’s dig deeper into these definitions to get a concrete sense of the same. With the above definitions, it is clear that currency is a fiscal entity and it is subject to change with the change in the government’s monetary guidelines. A prime example of the same is the demonetization stance in India on the night of 8th November 2016. Whereas money is an intangible concept in simple terms it is an abstract term that is flexible to take any legit form and mode for the purpose of payments. A prime example of the same is the barter system of the past, cheques, bank payments, online payments, or digital payments of the present.

The bottom line is;

  1. Currency is replaceable.
  2. The power of money lies in the value associated with it.
  3. Money and currency are two different entities with different roles and functions to play and
  4. Knowing these differences can save us from any economic upheaval.

Coming to the point of how this implication is related to my financial literacy lesson no-2- Money keeps losing its value so convert it into an asset. From the above arguments, it is clear that; Currency is just a physical substance or an entity whereas money is when the government empowers the currency with value. So in the real sense, anything can become money with the government conferring a power of value on it, even a plain piece of paper can be called a currency as long as the government — the issuing body confers the power of money on that plain sheet of paper.

Now that we have shredded the misconception of considering money and currency as one and the same, let’s talk about business. Yes, the business of converting money into an asset. With the demonetization stance, we are pretty much aware of the fact that with the change in currency, the value of money fluctuates, therefore, the wise thing to do is move the wealth and income in the currency form which is (highly volatile) into a solid asset that guarantees cash flow. So that any fluctuation in the currency will not harm our economic status.

If I ask you what is that one fact that keeps the market going the unanimous answer will be cash circulation. That is what we see banks doing, the minute we deposit our money in currency form in banks the same minute banks start looking for ways to convert it into an asset, in other words, look for ways to loan it, or should we say invest in with a high rate of interest. I am sure it is not for me to talk about the conditions under which banks agree to lend. Therefore, we need to educate ourselves about the assets that guarantee cash flow. When it’s about investment, be wise and particular about choosing an asset because it is the asset that can make or break a deal, how? That is the story for another day which I promise to share soon. Till then keep reading, and keep learning.

Published by VINITA PAL

A person with an ability to capture the essence of the moments and artistically blend it in a poem.

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