We are all familiar with the word ‘bank’. We may have heard or read about it multiple times in books, and some of us may even have visited it with our parents or grandparents. Today, we will talk about what a bank is and what it does.
Let’s get started!
It is an organisation that handles money, just like a school is an institution that deals with education. People keep their money in it because it is safer than keeping it in a desk drawer or piggy bank at home. We can also take out the money we have kept in the bank whenever we want.
All these acts of putting in money and taking out money from the bank are recorded by the bank, which means that there is rarely any chance of a mistake. These records are securely kept for years.
Exercise: List the names of banks near your house with the help of your parents.
How does it work?
We put money in the bank because they do not charge any fee to keep the money. Instead, they pay us interest in the form of extra money on the money we save in the bank, which makes our money grow.
It is impressive, right? But how does it get the extra money to give us?
Similar to how we can put money in the bank for safekeeping, we can also borrow money from them when we need it. The only difference is that banks will charge a fee when we borrow money from them.
Banks do both–take money from people in the form of deposits and let people borrow money in the form of loans. They earn money from loans. They make money from the difference between how much interest they pay people and how much interest they charge people who borrow money from them.
Exercise: Ask your parents if they have ever borrowed money in the form of a loan from their bank. Discuss the reasons.
What does it do?
Banks do much more than simply give and receive money.
Here are a few things that they do:
Exercise: Which of these services do you find most interesting? Give two reasons.
Disclaimer: This blog has been written for children between the ages of 5 to 7. The information has been presented accordingly. Parental discretion is advised.
You may read other articles in the financial literacy for children series here.
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