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Your children probably can’t even rememb

November 5, 1997

Your children probably can’t even remember the first time they were in a bank. Most of us just take banking for granted. Without even realizing it, every day we are in some way affected by banks. The more your child knows about the world of banking the more control he can have over his own finances.

How a bank works

A bank is a business that does two main things: It takes in money from people and businesses and keeps it in a safe place, and it lends or rents money out to people and businesses who need it. The bank pays a little money to the people who deposit their money in the bank. That payment is called interest. When the bank lends money to other people, it charges them money for that privilege; that payment also is called interest.

Money and banks in the United States

The original 13 Colonies used money from other countries or they bartered to get the things they wanted. At first they used Indian wampum as money, but later used gunpowder, sugar, salt, bullets, tobacco and furs.

The first U.S. money, a one-cent coin, was minted in 1787. One side of the coin was decorated with a chain of 13 links and the motto ``We are one.″ The other side had a sundial, and below the dial was the saying ``Mind your business,″ which meant you should work hard, not keep your nose out of other people’s affairs. People thought the sayings sounded like those of Benjamin Franklin, and this coin was known as the Franklin Cent, but there doesn’t seem to be any evidence to suggest that Franklin was involved with the coin’s design.

In 1690, the Massachusetts colony issued the first paper money, giving it to soldiers returning from a failed siege of Quebec. Soon, other Colonies began issuing their own paper money.

The first banks were established by the colonists before the American Revolution, much to the chagrin of the British. A group of farmers and merchants would pledge their land, stores and homes as security, or collateral, against the paper money their ``land bank″ would issue.

When the American Revolution began, the Continental Congress printed $2 million in paper money to pay for expenses. The problem was that there was nothing to back up the currency and it was almost worthless. Inflation hit hard by the late 1700s in our country, when it took $100 in paper money to buy $1 in silver. Here’s what some items cost in the 1780s:

_ A pound of tea $90

_ A pair of shoes $100

_ A barrel of flour $1,575

A bank on every corner

After the Revolutionary War, and actually for the next 100 years, there was a great debate over how to organize the banking system. By the 1860s, an estimated 8,000 banks had been formed in the United States, with most printing their own money. The banknotes were not always accepted by merchants and banks in other parts of the country. If a bank that printed its own money failed, its money was worthless.

The federal government issued the first national paper money to finance the Civil War. The notes were called Greenbacks. But there were still too many small banks, and there was no control over the supply of money.

In 1907, people panicked after a series of bank failures. They ran into their local banks to withdraw their money, and small banks ran out of cash.

In 1913, President Woodrow Wilson set up the Federal Reserve System. All national banks had to become members. The ``Fed,″ as it is nicknamed, is our central banking system, consisting of 12 regional reserve banks. Each of these banks acts as a central banker for the private banks in its area. Each holds money reserves, provides cash and makes loans to member banks.

How you can get money

When your local bank needs coins and bills, it orders cash from its Federal Reserve bank. Federal Reserve banks keep a lot of cash in their vaults so local banks don’t have to do it.

Even though you may not see it, the Federal Reserve affects your daily life. It has ways of managing the amount of money in circulation. If too much money is available, we will have inflation. That means that there is an increase in what things cost. If there is too little money around, people can’t buy things, so factories stop making products and people lose their jobs. This is called a recession.

You’ve come a long way, baby!

In U.S. history, a real woman has been represented on our currency only twice. In 1886, the One Dollar Silver Certificate had a picture of Martha Washington. Then we created the Susan B. Anthony dollar coin. Susan B. Anthony is known for her efforts to get women the right to vote. Unfortunately, the coin was a flop. It was the approximate size of a quarter, and people confused the two coins. They became annoyed and stopped using the Susan B. Anthonys.

Our money tells a story

Get a dollar bill and have your children try to answer some of these questions.

1 - What material is the bill made of?

Answer: It looks like paper, but it’s actually made of cotton and linen.

2 - Why do your hands get dirty when you handle bills?

Answer: The bills are printed with a special ink that never completely dries. This ink makes it hard for counterfeiters to copy. The formula of the ink is kept a secret.

3 - What does the bald eagle on dollar bills stand for, and who thought of it?

Answer: The American bald eagle is depicted on the Great Seal of the United States. It took Benjamin Franklin, Thomas Jefferson and John Adams six years to develop the symbol. The eagle symbolizes bravery and freedom. In its right claw, it holds an olive branch with 13 leaves representing peace. In its left claw, it holds 13 arrows symbolizing armed strength. Together, these symbols represent a willingness to fight for our freedom. The number 13 stands for the original 13 states.

4 - What does the pyramid on the dollar represent, and why is it unfinished?

Answer: The unfinished pyramid symbolizes the idea that our country is still growing and building, and is striving for perfection.

5 - Why is there an eye above the pyramid?

Answer: It represents the watchful eye of God. Belief in the deity was important to our forefathers and is mentioned several times on our money.

6 - Take a look at the side of the dollar bill that has George Washington’s picture, and focus on the numeral 1 in the upper right-hand corner. Ask your children to identify the small owl peering from behind a swirl at the upper left-hand side of the top of the number. (You may need to use a magnifying glass.)

The question is: What does the owl represent?

Answer: No one in the Bureau of Engraving and Printing in Washington, D.C., where our money is made, seems to know why this little owl is there. It could be that one of the many engravers who designed our $1 bill sneaked it in. It was too expensive to redo the plates so our little owl will stay, for now, on our $1 bills.


Money Trivia


Did our government ever launder money?


Yes, it did, literally. In 1916, our federal government actually laundered money. Dirty money was sent to Washington, where it was washed, ironed and put back into circulation.

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