The Functions of Money

Active learning works for this topic because students need to see money as a dynamic process, not static facts. When they simulate how banks move money or investigate the 2008 crisis, they experience firsthand how financial systems function and fail, making abstract concepts tangible and memorable.

• Year 11
• Economics
• 3 activities
• 15 min–45 min

Learning Objectives

1. Compare and contrast a barter system with a monetary economy, identifying at least two key differences.
2. Explain the three primary functions of money (medium of exchange, unit of account, store of value) using specific economic examples.
3. Evaluate the suitability of various items (e.g., shells, digital currency, gold) as money based on established characteristics like durability and divisibility.
4. Analyze how the characteristics of money influence its effectiveness in facilitating trade and economic transactions.

Simulation Game

⏱ 45 min·Whole Class

Simulation Game: The Banking Game

Students act as savers, borrowers, and a bank. Savers deposit 'money' (tokens), and the bank must decide how much to keep in reserve and how much to lend out to borrowers for 'business projects.' This illustrates credit creation and the risk of a 'bank run.'

Prepare & details

Explain the three primary functions of money in an economy.

Facilitation Tip: During the Banking Game, circulate with a prepared flow diagram so students can physically trace how deposits become loans and reserves.

Setup: Flexible space for group stations

Materials: Role cards with goals/resources, Game currency or tokens, Round tracker

• Apply
• Analyze
• Evaluate
• Create
• Social Awareness
• Decision-Making

Inquiry Circle

⏱ 40 min·Small Groups

Inquiry Circle: The 2008 Crisis

Groups are given different 'clues' about the 2008 financial crisis (e.g., risky mortgages, bank bailouts, falling house prices). They must piece them together to create a 'crime scene' board explaining why the financial system nearly collapsed.

Prepare & details

Analyze how a barter system differs from a monetary economy.

Facilitation Tip: In the 2008 Crisis investigation, assign each group a specific role (e.g., banker, regulator, homeowner) to ensure all voices contribute to the analysis.

Setup: Groups at tables with access to source materials

Materials: Source material collection, Inquiry cycle worksheet, Question generation protocol, Findings presentation template

• Analyze
• Evaluate
• Create
• Self-Management
• Self-Awareness

Think-Pair-Share

⏱ 15 min·Pairs

Think-Pair-Share: Why do we need banks?

Pairs list five things they wouldn't be able to do easily without a bank (e.g., buy a house, get paid, save for the future). They share these to define the key functions of the financial sector.

Prepare & details

Evaluate the characteristics that make something suitable as money.

Facilitation Tip: For the Think-Pair-Share on bank functions, provide sentence starters to scaffold precise language about liquidity and credit creation.

Setup: Standard classroom seating; students turn to a neighbor

Materials: Discussion prompt (projected or printed), Optional: recording sheet for pairs

• Understand
• Apply
• Analyze
• Self-Awareness
• Relationship Skills

Teaching This Topic

Teachers approach this topic by starting with students’ lived experiences of money and banks before introducing systemic roles. Emphasize the distinction between individual transactions (e.g., saving) and systemic functions (e.g., how banks collectively create credit). Avoid over-simplifying by treating all banks as identical; highlight how the Central Bank’s actions differ from commercial banks. Research shows that using simulations and case studies helps students grasp complex interdependencies more effectively than lectures alone.

What to Expect

Successful learning looks like students explaining how banks create credit through lending and reserves, linking the Central Bank’s role to stability, and connecting the 2008 crisis to liquidity risks. They should articulate why money needs to be a stable medium of exchange and how financial markets facilitate this.

Watch Out for These Misconceptions

Common Misconception

During the Banking Game, watch for students treating the vault as a permanent storage place for money.

What to Teach Instead

Use the game’s reserve requirement cards to visibly show how banks must hold only a fraction of deposits, while the rest is lent out, creating a constant flow of money.

Common Misconception

During the Think-Pair-Share on 'Why do we need banks?', listen for students assuming all banks are government-owned.

What to Teach Instead

Ask pairs to check the ownership status of the bank they use most often and share findings during the class discussion to correct this assumption.

Assessment Ideas

Exit Ticket

After the Banking Game, provide the three scenarios (farmer trading chickens, shop pricing bread, person saving for a car) and ask students to identify which function(s) of money each demonstrates, referencing their game experience to justify their answers.

Quick Check

During the 2008 Crisis investigation, ask students to individually rank the four items (rare painting, £10 note, bitcoin, bag of apples) by suitability as money, then discuss their rankings in small groups before revealing the correct characteristics of money.

Discussion Prompt

After the Think-Pair-Share on bank functions, facilitate a class discussion where students compare their barter system problems to real-world money functions, assessing their ability to articulate the advantages of money as a medium of exchange and unit of account.

Extensions & Scaffolding

• Challenge early finishers to design a new financial product that improves liquidity for small businesses and present it to the class.
• Scaffolding for struggling students: Provide a partially completed flow diagram of bank functions with blanks for key terms like 'reserve requirement' and 'credit creation.'
• Deeper exploration: Have students research how digital currencies challenge traditional banking functions and present findings in a short debate format.

Key Vocabulary

Medium of Exchange	An item widely accepted as payment for goods and services, eliminating the need for direct barter.
Unit of Account	A standard measure used to set prices and record debts, allowing for easy comparison of value.
Store of Value	An asset that can be saved, retrieved, and exchanged at a later time without deteriorating in value.
Barter System	A system of exchange where goods or services are directly traded for other goods or services without the use of money.
Divisibility	The characteristic of money that allows it to be divided into smaller units for transactions of varying value.