The Hamilton Spectator - - CLASSIFIED -

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.

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