I'm just having a hard time trying to figure out what counts as money money and what I'm Yeah, I don't think I'm paying off my student loans with this guy.

In this lesson, we're going to discover all the different things people have used as money in the past, learn about the different ways we exchange money in the present, and ponder about how the very nature of money might change in the future.

Money isn't just one thing.

It's anything that represents purchasing power.

This is why when we discuss forms of money, what we're actually talking about is forms of financial exchange, meaning the ways that purchasing power or money can be transferred from one owner to another.

Before the digital age brought computers and electronic payment, all forms of financial exchange were physical.

Most ancient civilizations and tribes had at least one item that they found highly valuable.

Pieces of metal, scraps of leather, shells, or crops like wheat or corn.

These are what is known as commodity money because their value is in being a commodity or a good that can be exchanged for others.

Metal and leather were valuable because they could be used to make things.

Shells could be used to make jewelry.

And wheat and corn were valuable because, well, who doesn't need food?

Later on, some civilizations began using representative money, money that isn't a commodity itself, but represents ownership of the commodity and can be traded for it at any time.

At one point, all money in the United States represented real life gold.

That hundred dollar bill in your pocket meant the government was holding onto a hundred dollars worth of gold for you, and you can trade it in or give it to somebody else if you wanted.

This was known as the gold standard, and it ended in the 1970s.

But wait, if money today doesn't represent gold, what does it represent?

That's the thing.

It no longer represents any physical commodity.

Our money today is known as fiat money, meaning the only thing it represents is a promise, a promise by the government that it legally has to be accepted as payment.

The most obvious example of financial exchange and the strongest example of fiat money is cash, physical bills, and coins.

Say you give someone a $10 bill, a $2 bill, and a quarter.

That means you just lost $12.25 worth of purchasing power, and the other person just gained that much.

A very interesting fact about cash is that governments are very keen on making sure that the materials used to make money are worth less than the value of the money themselves.

For instance, if I could melt down a quarter and get a dollar's worth of metal, then a quarter and a dollar would be worth the same thing, right?

As a matter of fact, the U.S. government had to change the way they made pennies in 1982 because the raw copper they used to make them were worth more than the pennies themselves.

Don't go melting down your pre-82 pennies, though.

It is very illegal to destroy still circulating money.

If pennies ever leave circulation, though, go for it.

Make a nickel off of that old penny.

Most of the financial exchanges we do today, though, are not physical.

Most of our money is in digital bank accounts.

They're interesting because they kind of blur the line between representative money and fiat money.

Think of it this way.

If the number that you see on your bank account balance represents an actual amount of physical cash in a bank vault somewhere, but that bank vault cash is fiat money, is your bank account balance representative or fiat?

Some people have decided that digital bank account balances and electronic transfers should be considered an entirely new category of money, electronic money.

There are tons of ways we can move money from our own bank account to somebody else's bank account.

One way we do this is with paper checks.

Checks order banks to transfer a specific amount of money from one person's account into someone else's.

The recipient presents the check to their bank, and these numbers here tell the bank what account to pull the money out of.

Debit cards are basically the same thing, which is why they're sometimes called check cards.

These numbers here identify your bank account, and when you swipe your debit card at a store or input the numbers when shopping online, it authorizes the store's bank to automatically pull money from your account into theirs.

With credit cards, you pay using the issuer's money, which you are then responsible for paying back to them later.

Using a credit card is just like taking out a small loan, and if you don't pay the money back, you might not be able to take out big loans when you need them.

We'll talk more about credit cards and loans later on in the course.

People often confuse debit cards and credit cards, but they're two very different things.

Debit cards transfer your money right then.

Credit cards transfer the issuer's money, and then you have to pay it back later.

These are the most common forms of financial exchange, especially in day-to-day life, but there are others that you'll occasionally see.

With auto-drafts, or ACH payments, you provide your bank account details to a person or company, and they automatically pull money out at scheduled times.

This is useful for things like monthly subscriptions.

The opposite of this is direct deposit, where you provide your bank account details to a person or company, and they automatically put money in at scheduled times.

This is how many employers pay their employees on payday.

You might have heard of wire transfers in spy movies, but they're not quite so exciting in real life.

A wire transfer is simply a speedier way to move money between banks, and unlike many other forms of financial exchange, wire transfers can be done internationally.

Wire transfers can also be used for much larger amounts of money than other forms.

All great reasons for an international spy to request wire transfers, but for most of us, it's just a good way to pay a lot of money at once, like for a house or a new car.

With the majority of financial exchanges today being virtual, it's hard to imagine what money might evolve into further into the future.

Some people say that the future of money is in cryptocurrency, like Bitcoin.

This would be unlike anything we've ever seen before, because cryptocurrency isn't backed by anything, not even a government's promise.

It instead gets its value from how useful it is.

And with more and more high-profile companies like Microsoft, Starbucks, and AT&T accepting Bitcoin, its usefulness seems to be rising quickly.

Now, I mentioned bank accounts a lot in this video, but did you know that banks are far from the only businesses who are solely focused on money?

In the next lesson, we're going to be learning about all the different kinds of financial institutions that make your wallet their business.

See you then!