YOU CAN BANK ON IT!

The Way It Was

As you have learned, the use of money as a medium of exchange goes back a long way. So does banking. In ancient times, temples were the safest place to store precious metals - no one would dare steal from a temple for fear of angering the gods. So temples in different cities became the first banks. Although money was in a safe place, every city had different coins. This made it difficult for travelling merchants because they could not use money from their home city when purchasing goods in another city. To fix this problem, a system was set up whereby the merchants could pay a fee to money-changers who would exchange coins from one city for those from another. They also exchanged coins for gold or silver. This encouraged trade between different cities and countries and in fact helped grow the trading industry. Money changers were the first bankers, followed later in history by goldsmiths who kept people’s valuable possessions in their vaults. From the 14th to 19th century various banks were established in Europe. Across the ocean, In 1792, nine Montreal merchants formed the Canada Banking Company, but because it could not obtain permission to issue bank notes it failed, as did two other similar ventures in 1807 and 1808. In 1817 the Bank of Montreal owned by 289 subscribers opened its doors in Canada. Two other banks soon followed – the Bank of New Brunswick and the Bank of Upper Canada. By 1886 there were thirty-eight chartered banks operating in Canada but only 8 remained by 1914.

The Business of Banking

A bank may be a safe place to keep your money (definitely safer than under your mattress!) but it is also a business. A bank needs to make a profit to stay in business (a profit is the money left over after paying expenses.). They make a profit by investing their own money and by charging their customers for the services they provide. Banks also make money by lending money. When you deposit your money in a bank, you are letting the bank use it. The bank puts your money with the money deposited by other customers to make loans. In return for using your money the bank pays you interest. The bank can then lend your money to someone who wants to borrow it. The borrower has to pay the bank interest. But the interest a borrower pays is more than the interest the bank pays to use your money. This means that the bank makes a profit – just like the money-changers did. Let’s look at an example. Say Kieran put $100 in the bank and the bank agrees to pay you 5% interest per year. If you don’t touch the money, the bank will pay you $5 in interest at the end of the year. Your balance would now be $105. Now say, Leah wanted a loan for $100 and the bank charged 10% interest on loans. By the time the borrower had paid back the loan they would have paid the bank $110.

Piggy Banks and Other Banks

There are 2 main types of banks: Central Banks and Chartered Banks. Chartered banks are the ones you are probably familiar with. They accept deposits, lend money and conduct other financial transactions for their customers. The central bank known as the Bank of Canada operates as an arm of the federal government. Most countries have a central bank to help regulate money but it is not a typical bank. You cannot deposit money there – but banks can. The Bank of Canada controls the money supply for the whole country. It does this by lending money to banks when they need it, but controlling the amount of money it lends. Just as banks charge interest to customers who borrow money, so too does the Bank of Canada charge interest to banks for borrowing money. When interest rates are high banks borrow less money. This means there is less money available to use. It is up to the Bank of Canada to regulate this and make sure that the total amount of money in circulation in the country is just right. Trust companies and Credit Unions are known as near-banks. That is, they perform most, but not all, of the same functions as a chartered bank. Although most Trust Companies in Canada were absorbed into the banking system in the 1980’s and 1990’s, the number of credit unions in the country increased rapidly. Credit Unions were started to help people borrow money. A group of people who had a common bond – teachers for instance or workers in a steel mill– pooled their savings to establish a financial institution that would lend money to colleagues. Credit unions offer the same services as chartered banks but they are non-profit. This means that any profits a credit union makes are shared with the members.

Banking Services

Since one of the ways a bank makes a profit is by charging fees to their customers, banks are always looking for new customers – more customers means more money for the bank. Because of this, banks offer services and conveniences that they think would be appealing to consumers. Special accounts, low interest rates on loans and mortgages are just two of the ways banks go about trying to attract new customers. Banks also look to offering convenient ways for customers to do their banking – by phone or online for instance. You can track your account balances, transfer funds, open a new account and pay bills via your bank’s website. About the only thing you need to go to the bank for would be to deposit some money or take some money out. But, wait, you can use a machine for that too! Today, you find automated teller machines (ATMs)/automated banking machines (ABMs) just about everywhere. You can deposit and withdraw money at these machines meaning you have even less need to go to the bank. In fact, there are some banks that do not have any branches at all – you do all your banking via phone, internet or mobile device. The money they save by not having branch buildings is passed on to the customer in the form of lower interest rates for loans, higher interest rates for savings and no fees for many of the services they offer. How convenient is that! Another convenience offered by many banks are safe deposit boxes. These are fire proof boxes about the size of a shoe box that are located in the bank’s vault. They are places where people can store such items as jewelry, important papers and family heirlooms. So you know your jewels can be safely stored but what about the money you deposit at the bank? What if a bank got robbed? Would you get your money back? The short answer is “yes.” All banks and credit unions must insure the money they have on deposit. If a bank was robbed, a government agency called the Canada Deposit Insurance Corporation would give you your money. But here’s an interesting fact. Most of the money on deposit in a bank isn’t really there – it’s just a computer entry! This is because banks only need to keep a small amount of deposits in cash. If you need to take say, $10,000 out of the bank you need to phone ahead to make sure the bank has that much cash on hand. If it doesn’t it will order the money from the Bank of Canada. Next up: Managing Your Moulah

Newspaper Activity and Fundraising Plan

Share your taglines with the class. Then, as a class, vote for the tagline that best fits your fundraising campaign. Remember, you will be using this across many platforms - print, possibly audio or video broadcasts and likely social media platforms. Continue by reading the information and completing the activity found on blackline master 5. You will then design a poster-sized print ad for your fundraising campaign. Remember to include the chosen tagline.