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Does More Money Really Make Us More Happy?

• Elizabeth Dunn
• Chris Courtney

A big paycheck won’t necessarily bring you joy

Although some studies show that wealthier people tend to be happier, prioritizing money over time can actually have the opposite effect.

• But even having just a little bit of extra cash in your savings account ($500), can increase your life satisfaction. So how can you keep more cash on hand?
• Ask yourself: What do I buy that isn’t essential for my survival? Is the expense genuinely contributing to my happiness? If the answer to the second question is no, try taking a break from those expenses.
• Other research shows there are specific ways to spend your money to promote happiness, such as spending on experiences, buying time, and investing in others.
• Spending choices that promote happiness are also dependent on individual personalities, and future research may provide more individualized advice to help you get the most happiness from your money.

Where your work meets your life. See more from Ascend here .

How often have you willingly sacrificed your free time to make more money? You’re not alone. But new research suggests that prioritizing money over time may actually undermine our happiness.

• ED Elizabeth Dunn is a professor of psychology at the University of British Columbia and Chief Science Officer of Happy Money, a financial technology company with a mission to help borrowers become savers. She is also co-author of “ Happy Money: The Science of Happier Spending ” with Dr. Michael Norton. Her TED2019 talk on money and happiness was selected as one of the top 10 talks of the year by TED.
• CC Chris Courtney is the VP of Science at Happy Money. He utilizes his background in cognitive neuroscience, human-computer interaction, and machine learning to drive personalization and engagement in products designed to empower people to take control of their financial lives. His team is focused on creating innovative ways to provide more inclusionary financial services, while building tools to promote financial and psychological well-being and success.

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Money Is Important: Here Are 15 Powerful Reasons

Table of Contents

Why is money important?

We all know that money is important, but have you ever wondered  why ?

There’s no doubt that money affects many areas of our lives. On one hand, we can owe some of our greatest experiences to the money we had to pay for them. On the other hand, we can feel so much stress and anxiety over our financial situations.

If you’ve always struggled with your finances, you might see money as a scarce resource that keeps you from being happy. Or, you might see it as some elusive goal that you’ll never achieve.

On the flipside, you may be overly driven to make more money because you think it will solve all of your problems. You dream of all you’ll do when your bank account has a balance with 5 or 6 zeros and the happiness you’ll finally have.

I’m sure you would agree that the role of money plays an important part in how we all live. It has the capacity to open up amazing opportunities that can change the entire course of your life.

So, it’s important to have the right perspective about money and not merely dismiss it as something that only seems to create problems for you – or as the one thing that will make all your dreams come true.

When you have a healthy mindset about why money is important, you can understand its true value in your life and the possibilities it can provide.

You’ll realize that money itself is just a neutral, unlimited resource that’s available to anyone who is willing to control it. It doesn’t exist to make your life miserable and it certainly can’t buy your happiness (or can it? more on that later ).

In this post, I’ll go over a few reasons why money is important, as well as how it can make some things easier, what problems it can create, and how much you really need.

Why do I need money?

This might be a silly question to think about (as you stare at your credit card bill), but it’s helpful to challenge your assumptions about money.

For most of us, money is absolutely a necessity. We need it for shelter, food, and clothing. Without these basics, your life would be in serious trouble. Money is the resource that allows you to attain a certain level of security and safety. To a certain degree, money helps you survive.

Now, that’s pretty important!

However, it can be easy to forget the significance of these basic necessities when you’re worried about how you’ll make your car payment this month. (When you feel your anxiety rising, focus on the fact that your money is allowing you to have a roof over your head and food on the table. Thanks, money!)

Beyond the basics, there are many benefits of money including freedom, comfort, and providing an unlimited number of opportunities to enhance your life. This is where many people get tripped up and start spending more money than they make. They see money as something that can buy them a little excitement or enjoyment now, instead of a means to build a financially secure future.

Money can do either, or both. It doesn’t care. It has no control over how you use it.

Money is simply a tool that can work for you or against you.

So, if you want to increase your financial literacy and maximize the benefits of money in your life, it’s critical that you learn how to use it properly.

When you learn better behaviors around money, its importance in your life will be evident in the freedom and choices available to you. Let’s talk about some of those.

15 reasons why money is important

When it comes to money, the more the better – right? After all, more cash means more stuff.

But, just having a nicer car or bigger home doesn’t give us deep fulfillment in life. So, why is money important, and why do we all want more of it?

Let’s go over 15 of the main reasons money is important.

1. Money is important because it gives you freedom and control

As an American, I am thankful for my freedom. I’m not restricted to what I can say, what I can believe, and whom I can worship.

However, as important as these things are, they don’t pay the bills. And, if I don’t have enough money, I am greatly restricted to where I can live, what I can eat, and how I can spend my time.

Without enough money, your freedoms are limited and you may even have to spend most of your time working just so you can cover the basic necessities. What little control you have may end up making you feel out of control.

Most people that don’t have enough money usually go into debt. Credit card bills and payday loans keep you from living in financial independence and hold you back from achieving your life’s dreams.

2. Money is important because it gives you options in life

Having access to money in the bank opens up more options for you. When you have enough money, you have more choices with the neighborhood you live in, the car you drive, the restaurants you eat at, and even the health care you choose.

Feeling stuck in your circumstances can be frustrating and discouraging. Money is important because it allows you the choice to change careers, move to another city, or buy a more reliable vehicle. 

3. Money allows you to pursue your passion

If you have to work two jobs just to pay the bills and cover your credit card debt, you won’t have the time or energy to go after your dreams.

It’s important to have money that gives you the breathing room to pursue your interests. You need to invest in yourself if you want a fulfilling life.

4. Money is important because it provides security

Financial stability comes with a lot of benefits, including a sense of security and peace of mind. When you have more than enough to pay your bills and stash some away, you don’t have to deal with financial worries about how you’ll survive.

You don’t need a lot of money to live securely, but you need enough to pay your bills and save an emergency fund to cover 3 to 6 months of living expenses.

Knowing a small emergency won’t turn into a crisis will give you the sense of security you need to make good financial decisions.

5. Money can provide valuable opportunities for your children

We all want the best for our kids, and money can help us provide a quality education to give them a good head start in life.

Private schools are expensive and usually out of reach for the family living paycheck to paycheck. This typically leaves the local public school as the only choice for hardworking parents who both have to work to get the bills paid. As a result, there is little choice or control over the quality of education and after-school programs their children have access to.

When you have the money, you can afford a better education, private lessons, tutors, and coaches. These additional opportunities give your kids the chance to pursue their interests at a young age and develop skills that give them an advantage in adulthood.

Of course, there can be a fine line between giving your kids an advantage in life and creating entitled little people. When you have the money to give them more choices, play a key role in their lives by teaching your kids about money and the value of hard work. 

6. Money helps you make more of it

The more money you can invest, they more you’ll have in the long run.

If you can find the money to buy real estate, invest in the stock market, and save in a tax-advantaged retirement account, then your money will grow.

Then, when you retire, you can benefit from passive income sources to support you through your golden years.

7. Money is important for giving back

Money is important because it allows us the opportunity to give back to the world we live in. Most people have a desire to be generous but have gotten stuck in a scarcity mindset because they’re always worried about money.

When you live on a tight budget, it’s easy to stay focused on making sure your own needs are being met. There’s little left to help others who are struggling more than you.

When you have financial freedom, you can be generous without being concerned about your own needs. You can get your focus off of yourself and give financial support to the people and causes you value.

8. Money gives you the chance to live life to the fullest

Living life to the fullest can mean different things to different people. Of course, you can have a very full and satisfying life without being rich. It all depends on what brings you fulfillment.

I love to travel, so a “full” life for me would include lots of vacations to foreign countries. This would require a lot of extra discretionary income. My husband, on the other hand, doesn’t really care about going overseas. He’d rather go on road trips or camp out by a lake, both of which don’t cost a lot of money.

Either way, money is the commodity that allows you to create the experiences that enrich your life in meaningful ways. Sometimes you have to have it to do the things that bring you joy.

From traveling to education to learning new skills, money provides the freedom to pursue your passions and live life to its fullest. Without it, your options become very limited.

9. Money can buy happiness … if you spend it right

Can money really buy happiness?

In past research, it’s been shown that money and happiness do, in fact, have a positive correlation. However, the relationship is weak and only leads to more questions. What if you have bad spending habits? Does it matter what you spend it on?

Research has shown that it does. Specifically, if you use your money on experiences versus possessions, and for helping others, then you can experience more life satisfaction.

[put (partial) YT video here: https://www.youtube.com/watch?v=JLfKZCzkBDs]

10. Money can provide a higher education

There are many careers that require a college degree. If you want to climb the ranks in the business, legal or medical fields, then you’ll need at least 4 years at a university.

The average in-state tuition for four years at a public university in 2021 was $43,000. For out-of-state residents, this cost was almost 2.5 times the amount.

College is expensive .

But, if it’s part of your big dream, you’ll need money to get there.

11. Money is important for your health

If you’ve ever had to pinch pennies to make the rent, then you know how finances can be stressful. A little stress now and then isn’t a bad thing, but it can really damage your physical and mental health if it becomes a way of life.

Financial stress often leads to depression and anxiety. Some get trapped in bitterness and a victim mentality. Many choose to give up any hope that they’ll ever get out of debt or find a better paying job. They’re so focused on just getting by that they never find any fulfillment in life.

Chronic stress can lead to physical health problems, such as risk of heart attack, insomnia, weight gain, and a weakened immune system.

It’s important to have stability in your finances so you can reduce stress and increase your quality of life.

12. Money is important for community needs

Organizations that serve the community through homeless shelters, food banks, welfare programs, and public health facilities, need money to run effectively. These funds are often raised through private donations and fundraising events. 

Without this money, there are many people in the world who would go hungry and not have the medical care they need.

13. Money is the difference between surviving and thriving

Some people spend their entire lives stuck in a paycheck-to-paycheck cycle. This leaves them without any room to get ahead because they can barely cover basic living expenses.

Having additional money gives you the ability to live below your means, put some in savings, get out of debt, and pursue your interests. It takes you from just surviving through life to thriving in life.

14. Money is important to make quality purchases

Have you ever settled for the cheap option because you didn’t have enough money for higher quality?

I did this a lot in my younger days. Cheap furniture, cheap clothing, cheap electronics. Just because I couldn’t afford to pay for better quality.

Inevitably, cheap purchases end up costing you in the long run. They don’t last as long, they’re unreliable, and you have to replace them sooner.

Money is important to make quality purchases that will last, so you’re not wasting money on the cheap stuff.

15. Money makes life easier

There once was a time when bartering was the only way to shop. If you wanted a new cow, then you needed to offer something of similar value to the seller.

Thankfully, money was created to make these transactions more fair and efficient. It’s the universal means to exchange goods, which makes life so much easier!

Money can solve problems – but not all of them

If you’re always pinching pennies, you may fall into the belief trap that more money would solve all of your problems. More money can definitely be a welcome rescue from financial emergencies, but there are many issues in life that can’t be fixed with cash.

Money can fix your car after it breaks down so you don’t lose your job. Money can pay for the medicine you need for your child’s asthma so they can play sports. Money can replace your broken fridge so you have a place to keep food for your family.

Money is important because it *can* solve many problems in life very quickly and easily.

But, money can’t fix anything that doesn’t require an economic exchange. This means you can’t use money to solve problems like:

• Your broken relationship with your mother
• How many true and deep friendships you have
• The health of your marriage
• Your insecurities
• Earning respect from others
• Having the courage to confront someone

Money is important because it can work as a tool to help you improve in these matters. But, you won’t find resolution in these areas until you work on your own character issues and personal growth. No amount of money in the world will give you a fulfilling marriage or genuine friendships.

Money can also create problems

If you don’t have a firm grasp on what you truly value, then money can quickly become a priority that negatively affects your life.

Let’s go over a few problems that money has the potential to create. Being aware of the negative aspects of money will help you keep your finances in perspective.

Giving money too *much* importance

The bible says where your treasure is, there your heart will be also . When you make money your treasure, it can become more important than people, health, integrity, and even God.

Some can mistakenly believe that money is the root of all evil because they misquote that famous verse in the bible that actually says “the love of money is the root of all evil.”

Money in and of itself has no ability to create evil in the world. It’s *how* we feel about money that can cause great damage.

Throughout history, the love of money has destroyed marriages, broken friendships, caused jealousy and rage, and even led to murder and suicide. Some are so driven to make more of it that they lose everything most important to them.

Although money is important for many things, we must remember that it’s only a tool to serve us. Once it becomes the master, we lose control and become enslaved to the consequences that result.

Money is often the cause of stress

I mentioned earlier that having money is important to reduce stress in your life. However, it’s possible that too much can end up creating stress for you.

If you grew up in a lower-income family, you may have developed an unhealthy mindset around money. The fear of living in poverty again can drive you to work too much or live like a cheapskate. This can keep you in a perpetual state of stress and anxiety around money.

Money is important, but having a healthy money mindset is critical to enjoying your wealth.

Money can create divisions in relationships

Unfortunately, money can really bring out the worst in people. Disagreements in financial matters are a common cause of divorce, lawsuits, and strained family relationships.

It may be as simple as different spending habits, or as complicated as the distribution of an inheritance. When it comes to financial conflicts, you must decide what’s more important – the relationship or the money.

If you and your spouse often have money fights, do what you can to find common ground. Have a financial goal that you can move toward together, but also give each other the space to express your individual money values.

So, how much money is enough?

Because we live in a world where we rely on money for food and shelter, we will always be in need of having some. But, how much is enough? And how do you make sure you don’t run out?

Putting a figure on what’s sufficient for you is a personal choice. If you’re satisfied with a simple life and you keep your financial obligations to a minimum, you could live on relatively little. But, if you have your heart set on a vacation cabin in the mountains, paying for your kids’ college education, and retiring a millionaire, then you’ll obviously need more.

Setting financial long-term and short-term goals is a smart habit that will tell you how much money you’ll need for the things you want. When you’re intentional with financial planning, you have a direction to focus on and the steps you need to take to get there.

Other effective money habits include developing good money management skills and a healthy mindset . These both will help you strengthen your financial future. Learning how to budget , avoiding debt , and saving money will greatly increase your chances of not running out in retirement.

Just be careful to not get trapped in the belief that more money means greater happiness. In 2018, Purdue University published a study that revealed the point at which a greater annual income no longer had emotional benefits. The study found that once a person makes $75k a year, any increase in income actually tends to reduce life satisfaction.

Have a clear understanding of what you truly value and the vision you have for your life, and let those two priorities inform your financial goals and decisions.

What’s more important than money?

It’s probably not difficult for you to answer this question for yourself. But, it is important that you always keep your priorities in order. Otherwise, money can slowly start to create some of the problems mentioned above.

One way to maintain a healthy perspective of money is by keeping a gratitude journal. Take 5 minutes every day to write down 3 to 5 people and things that you’re grateful for. This will keep your focus on what you already have, instead of all the stuff you think is missing from your life.

Here are a few ideas you could add to your list:

• The relationships in your life
• Your health and well-being
• The lessons and experiences your life has given you
• The wisdom you’ve gained through the years
• Your ability to keep learning and growing as a person
• Your church and your faith

When you foster gratitude, growing, and giving on a consistent basis, it’s easier to keep money in its rightful place – as a tool that’s meant to serve you and support your efforts to create a fulfilling and purposeful life.

In conclusion: Money is important to live the life you want

No matter what life you want to create for yourself, you need money to make it happen. That’s why it’s important to practice good money management habits, and live below your means so you can save for the future.

Money can’t buy you happiness, but it can help you acquire things and experiences that create much joy and satisfaction for you. It can help you pursue your passions and purpose in life. And, it allows you to be generous and supportive of others in need.

Money is important to live the life you really want. To reach your goals and realize your dreams. So, take control of your finances and learn how to use it as a powerful tool in your life. Align your goals with your values and know your own answer to the question: why is money important to me?

Then, you’ll learn to master money instead of money mastering you.

Other posts you might like:

• 27 Buy Now Pay Later Catalogues For Bad Credit
• Why Is Saving Money Important? Here Are 50 Inspiring Reasons!
• 21 Powerful Benefits of the Quality Over Quantity Mindset
• I Need Money Desperately: 40 Ideas For Fast Cash
• How To Save Money When You’re Broke
• 18 Tips To Successfully Live Below Your Means (And Still Be Content)
• How To Make An Extra $1000 A Month: 50+ Profitable Side Gigs
• What is the purpose of a budget? Here are 17 powerful benefits
• How to save $5000 in a Year: A 5-Step Plan to Guarantee Success
• 9 Reasons You Shouldn’t Be Paying For Your Kids’ College Education
• How To Overcome 15 Major Obstacles To Achieving Goals

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Why Money Is Important And The Role It Plays in Our Lives

By Todd Kunsman

Financial Independence

Published on May-17-2021

Updated on Apr-11-2022

At some point, you may wonder why money is important and start to analyze the role it plays in your own life. 

And our society has plenty of different viewpoints when it comes to money and happiness, how much money is truly enough, and how to better with money. 

I’m sure you have heard many of the different sayings about money too, whether funny or to hit a particular point to make you think. 

You know the ones, like: 

• “Money doesn’t buy happiness.” – Proverb
• “Money is the root of all evil.” – 1 Timothy 6:10
• “Having money isn’t everything, not having it is.”  – Kanye West

But you’ve probably heard many proverbs, famous quotes, or other sayings from people around you. And while there may be some truth to not let money dictate your entire life and choices, money IS important.

Why Is Money So Important?

The reason money is so important is that it provides options for you to live a better life that you choose and puts you in control. Having money and being comfortable with finances also gives you freedom and options to decide how you want to live and support the things you care most about in your life. 

And yes, it’s true that money cannot necessarily buy you complete happiness forever and greed can make people do terrible things. Look what the hunger for more wealth and money did to Bernie Madoff and how he ruined the many families who invested with him. 

But while there is truth to some of the negative connotations to money, ultimately you have the strength to dictate how you use money and if you let it control you. 

Money is not everything in this world, but it can be powerful in helping you achieve your goals and let you make the best of the short life we all have. 

The Real Benefits of Money

While your whole life does not need to focus on money and accumulating wealth , it is still important to dedicate your time to understanding it and building a strategy.  

Look, we all know that more money means you can generally afford a fancier lifestyle, bigger homes, better vacations, and flashier cars. But those material items are not the real benefits of having money and the temporary excitement from those items quickly wanes.

So why is money important? 

Money Gives Your Freedom

Money is important because it gives you the freedom to do what you want, when you want, where you want. Sometimes we call this “ FU Money ,” which means you reach a point where you can just walk away from a job you hate and are not reliant on anyone’s financial support. 

Do you have hobbies you want to pursue? A dream to start your own business? Money gives you the freedom to explore those areas and take a bit of risk. 

Money Gives You Options  

Being able to make choices and have options is one of the best feelings in the world. Knowing you are stuck in a particular situation because you need the money or financial help is frustrating, so removing that from your life is a great relief.  

When you have money, you control what you want or don’t want to do. Want to have a different career? Want to move to a different state or country? Want to travel somewhere new for vacation? Do it. 

Money Creates Financial Security  

One of the most powerful feelings you can have is knowing you do not need to worry about money.  Financial stress is a common problem among people and families, which can lift a huge burden. 

Whether you lose your job or some economical turmoil happens, you aren’t worried about paying bills, paying to see a doctor for medical reasons, or wondering where your next meal will come from.

Having money and having a financial plan creates more security for you and your family. 

Money Can Create More Life Experiences

Life is short and goes by fast, which means you should want to experience the best things life has to offer while you are here. 

Hoarding money and never experiencing anything is a waste, afterall you can’t take the money with you to the grave! While that might not paint a pretty picture, it’s completely true. 

When you have money, it creates opportunities for you to get more out of life, travel the world, try new things, and get out of your own bubble of where you live. This can also help drive more happiness overall as you are experiencing more that life has to offer. 

Money Helps You Give Your Family More

While generational wealth can be a good thing, there is a fine line of instilling in your children good values and work ethic beyond just handing money over to them. 

But money matters because you can provide your family with better education opportunities, better healthcare, and a better start in life overall. 

There are plenty of children that become spoiled and it creates unrealistic expectations of money while growing up. But that’s where teaching them about money and not giving them every little luxury without hard work will be key. 

Money Lets You Give Back

At some point, you may reach a level of income or financial freedom where you can afford to give back. Helping out charities, your local community, or other causes is a great feeling and it can create happiness when you are helping others.

Yes, there are also some tax incentives when you donate to charities, but hopefully, that would not be your main driver to give back. 

Those are some of the main reasons money is important and should be things you think about in your own pursuit of financial independence. But I’m sure there are other reasons money might be important to you as well. 

The Negative Side of Money

While there are plenty of benefits to having money, there are negatives to it as well. Focusing your energy on making money, saving, and investing is important but it’s a careful balance to not let it consume every little decision you make. 

Obsessing Over Money Causes Problems 

While we may all strive for money or financial peace, obsessing over money and making money can really cause problems in your life.

When you focus all your time on money and trying to acquire more of it, you can end up destroying your relationships with family and friends. It can also lead you down a path of unethical behavior (see once again, Bernie Madoff) or criminal activities just to get more money.

Having an obsession with money is a destructive disorder that can ruin your life and others. Sure, you may have all the money in the world, but if you trampled over everyone, who is going to be next to you enjoying life? No one or not anyone that you would trust to genuinely care about you and not your wealth.

Making Money Can Cause More Stress 

Not only can money help reduce financial stress, but it can also cause more unwanted stress too. Funny how that works, ain’t it?

For those where money is never enough, no matter how much they have — it actually can create more stress.

You find yourself working crazy hours every week, spending every waking moment thinking about money, and even getting anxious over your efforts for more. That stress not only takes a toll on your mental and physical health but affects those around your like family and co-workers.

Can Create More Family Disagreements 

In a MarketWatch article , they mentioned that TD Ameritrade found that 41% of divorced Gen Xers and 29% of Boomers say they ended their marriage due to disagreements about money.

While these numbers are just a few years old, money continues to be a common cause for disagreements and arguments among spouses and families.

If you are not on the same page with your spouse or family, money will certainly be a common friction point. And you certainly won’t be in agreement ALL the time, but having similar values and thoughts about money can limit the disagreements.

How Much Money Is Enough?  

As you can see from above, there is nothing wrong with the pursuit of financial independence and money. But there can be downsides as well.

The issue begins when you let greed consume you and find yourself doing whatever it takes to make more money. This is when you start to hurt people, alienate friends and family, and end up in a self-destructive path. 

The question you have to truly ask yourself is how much money is enough? 

For many looking to pursue financial freedom , that number of how much is enough comes to 25x of yearly expenses. So say your expenses are $30,000 per year, you’d ideally want to have $750,000 saved and invested. 

This is the best baseline when evaluating why money is important to you and how much should be enough. It’s a good goal and amount where you can live happily and be comfortable in life. 

For some people, that 25x goal seems like more than enough, not everyone needs to be like Warren Buffett or the next Jeff Bezos. And for others, they would never be satisfied with that amount.

Happiness fades after a certain amount 

It’s a great idea to have a budget, financial goals, and maybe a net worth number you are striving to achieve. That’s never a bad thing! 

But often it’s easy to get into a whirlwind of bad spending habits or needing more and more, never being satisfied with what you have. 

In a fascinating research topic, High income improves evaluation of life but not emotional well-being by Daniel Kahneman and Angus Deaton, the authors explore the impact of money on your overall well-being. 

Essentially, the key findings from their research were that money can keep increasing satisfaction up to any amount, but money only has an affect on your overall happiness up to an annual income of $75,000. 

While the research goes much more in-depth and is from 2010, something to keep in mind as you pursue money and think about your finances. 

Final Thoughts

Health and family are some of the most important things in life. If you have those two things, then you are living a pretty rich life. But there is no denying the importance of money and that it can create better life opportunities.

Naturally, money won’t solve all your problems and if you were an unhappy person prior to money, then gaining some wealth may only be a temporary solution. 

The real opportunity is to find the right balance where you see money as important, but a tool that can help you create better life experiences and opportunities.

Can Money Really Buy Happiness?

Money and happiness are related—but not in the way you think..

Updated November 10, 2023 | Reviewed by Chloe Williams

• More money is linked to increased happiness, some research shows.
• People who won the lottery have greater life satisfaction, even years later.
• Wealth is not associated with happiness globally; non-material things are more likely to predict wellbeing.
• Money, in and of itself, cannot buy happiness, but it can provide a means to the things we value in life.

Money is a big part of our lives, our identities, and perhaps our well-being. Sometimes, it can feel like your happiness hinges on how much cash is in your bank account. Have you ever thought to yourself, “If only I could increase my salary by 12 percent, I’d feel better”? How about, “I wish I had an inheritance. How easier life would be!” I don’t blame you — I’ve had the same thoughts many times.

But what does psychological research say about the age-old question: Can money really buy happiness? Let’s take a brutally honest exploration of how money and happiness are (and aren’t) related. (Spoiler alert: I’ve got bad news, good news, and lots of caveats.)

Higher earners are generally happier

Over 10 years ago, a study based on Gallup Poll data on 1,000 people made a big headline in the news. It found that people with higher incomes report being happier... but only up to an annual income of $75,000 (equivalent to about $90,000 today). After this point, a high emotional well-being wasn’t directly correlated to more money. This seemed to show that once a persons’ basic (and some “advanced”) needs are comfortably met, more money isn’t necessary for well-being.

But a new 2021 study of over one million participants found that there’s no such thing as an inflection point where more money doesn’t equal more happiness, at least not up to an annual salary of $500,000. In this study, participants’ well-being was measured in more detail. Instead of being asked to remember how well they felt in the past week, month, or year, they were asked how they felt right now in the moment. And based on this real-time assessment, very high earners were feeling great.

Similarly, a Swedish study on lottery winners found that even after years, people who won the lottery had greater life satisfaction, mental health, and were more prepared to face misfortune like divorce , illness, and being alone than regular folks who didn’t win the lottery. It’s almost as if having a pile of money made those things less difficult to cope with for the winners.

Evaluative vs. experienced well-being

At this point, it's important to suss out what researchers actually mean by "happiness." There are two major types of well-being psychologists measure: evaluative and experienced. Evaluative well-being refers to your answer to, “How do you think your life is going?” It’s what you think about your life. Experienced well-being, however, is your answer to, “What emotions are you feeling from day to day, and in what proportions?” It is your actual experience of positive and negative emotions.

In both of these studies — the one that found the happiness curve to flatten after $75,000 and the one that didn't — the researchers were focusing on experienced well-being. That means there's a disagreement in the research about whether day-to-day experiences of positive emotions really increase with higher and higher incomes, without limit. Which study is more accurate? Well, the 2021 study surveyed many more people, so it has the advantage of being more representative. However, there is a big caveat...

Material wealth is not associated with happiness everywhere in the world

If you’re not a very high earner, you may be feeling a bit irritated right now. How unfair that the rest of us can’t even comfort ourselves with the idea that millionaires must be sad in their giant mansions!

But not so fast.

Yes, in the large million-person study, experienced well-being (aka, happiness) did continually increase with higher income. But this study only included people in the United States. It wouldn't be a stretch to say that our culture is quite materialistic, more so than other countries, and income level plays a huge role in our lifestyle.

Another study of Mayan people in a poor, rural region of Yucatan, Mexico, did not find the level of wealth to be related to happiness, which the participants had high levels of overall. Separately, a Gallup World Poll study of people from many countries and cultures also found that, although higher income was associated with higher life evaluation, it was non-material things that predicted experienced well-being (e.g., learning, autonomy, respect, social support).

Earned wealth generates more happiness than inherited wealth

More good news: For those of us with really big dreams of “making it” and striking it rich through talent and hard work, know that the actual process of reaching your dream will not only bring you cash but also happiness. A study of ultra-rich millionaires (net worth of at least $8,000,000) found that those who earned their wealth through work and effort got more of a happiness boost from their money than those who inherited it. So keep dreaming big and reaching for your entrepreneurial goals … as long as you’re not sacrificing your actual well-being in the pursuit.

There are different types of happiness, and wealth is better for some than others

We’ve been talking about “happiness” as if it’s one big thing. But happiness actually has many different components and flavors. Think about all the positive emotions you’ve felt — can we break them down into more specifics? How about:

• Contentment
• Gratefulness

...and that's just a short list.

It turns out that wealth may be associated with some of these categories of “happiness,” specifically self-focused positive emotions such as pride and contentment, whereas less wealthy people have more other-focused positive emotions like love and compassion.

In fact, in the Swedish lottery winners study, people’s feelings about their social well-being (with friends, family, neighbors, and society) were no different between lottery winners and regular people.

Money is a means to the things we value, not happiness itself

One major difference between lottery winners and non-winners, it turns out, is that lottery winners have more spare time. This is the thing that really makes me envious , and I would hypothesize that this is the main reason why lottery winners are more satisfied with their life.

Consider this simply: If we had the financial security to spend time on things we enjoy and value, instead of feeling pressured to generate income all the time, why wouldn’t we be happier?

This is good news. It’s a reminder that money, in and of itself, cannot literally buy happiness. It can buy time and peace of mind. It can buy security and aesthetic experiences, and the ability to be generous to your family and friends. It makes room for other things that are important in life.

In fact, the researchers in that lottery winner study used statistical approaches to benchmark how much happiness winning $100,000 brings in the short-term (less than one year) and long-term (more than five years) compared to other major life events. For better or worse, getting married and having a baby each give a bigger short-term happiness boost than winning money, but in the long run, all three of these events have the same impact.

What does this mean? We make of our wealth and our life what we will. This is especially true for the vast majority of the world made up of people struggling to meet basic needs and to rise out of insecurity. We’ve learned that being rich can boost your life satisfaction and make it easier to have positive emotions, so it’s certainly worth your effort to set goals, work hard, and move towards financial health.

But getting rich is not the only way to be happy. You can still earn health, compassion, community, love, pride, connectedness, and so much more, even if you don’t have a lot of zeros in your bank account. After all, the original definition of “wealth” referred to a person’s holistic wellness in life, which means we all have the potential to be wealthy... in body, mind, and soul.

Kahneman, D., & Deaton, A.. High income improves evaluation of life but not emotional well-being. . Proceedings of the national academy of sciences. 2010.

Killingsworth, M. A. . Experienced well-being rises with income, even above $75,000 per year .. Proceedings of the National Academy of Sciences. 2021.

Lindqvist, E., Östling, R., & Cesarini, D. . Long-run effects of lottery wealth on psychological well-being. . The Review of Economic Studies. 2020.

Guardiola, J., González‐Gómez, F., García‐Rubio, M. A., & Lendechy‐Grajales, Á.. Does higher income equal higher levels of happiness in every society? The case of the Mayan people. . International Journal of Social Welfare. 2013.

Diener, E., Ng, W., Harter, J., & Arora, R. . Wealth and happiness across the world: material prosperity predicts life evaluation, whereas psychosocial prosperity predicts positive feeling. . Journal of personality and social psychology. 2010.

Donnelly, G. E., Zheng, T., Haisley, E., & Norton, M. I.. The amount and source of millionaires’ wealth (moderately) predict their happiness . . Personality and Social Psychology Bulletin. 2018.

Piff, P. K., & Moskowitz, J. P. . Wealth, poverty, and happiness: Social class is differentially associated with positive emotions.. Emotion. 2018.

Jade Wu, Ph.D., is a clinical health psychologist and host of the Savvy Psychologist podcast. She specializes in helping those with sleep problems and anxiety disorders.

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24.1 What Is Money?

Learning objectives.

• Define money and discuss its three basic functions.
• Distinguish between commodity money and fiat money, giving examples of each.
• Define what is meant by the money supply and tell what is included in the Federal Reserve System’s two definitions of it (M1 and M2).

If cigarettes and mackerel can be used as money, then just what is money? Money is anything that serves as a medium of exchange. A medium of exchange is anything that is widely accepted as a means of payment. In Romania under Communist Party rule in the 1980s, for example, Kent cigarettes served as a medium of exchange; the fact that they could be exchanged for other goods and services made them money.

Money, ultimately, is defined by people and what they do. When people use something as a medium of exchange, it becomes money. If people were to begin accepting basketballs as payment for most goods and services, basketballs would be money. We will learn in this chapter that changes in the way people use money have created new types of money and changed the way money is measured in recent decades.

The Functions of Money

Money serves three basic functions. By definition, it is a medium of exchange. It also serves as a unit of account and as a store of value—as the “mack” did in Lompoc.

A Medium of Exchange

The exchange of goods and services in markets is among the most universal activities of human life. To facilitate these exchanges, people settle on something that will serve as a medium of exchange—they select something to be money.

We can understand the significance of a medium of exchange by considering its absence. Barter occurs when goods are exchanged directly for other goods. Because no one item serves as a medium of exchange in a barter economy, potential buyers must find things that individual sellers will accept. A buyer might find a seller who will trade a pair of shoes for two chickens. Another seller might be willing to provide a haircut in exchange for a garden hose. Suppose you were visiting a grocery store in a barter economy. You would need to load up a truckful of items the grocer might accept in exchange for groceries. That would be an uncertain affair; you could not know when you headed for the store which items the grocer might agree to trade. Indeed, the complexity—and cost—of a visit to a grocery store in a barter economy would be so great that there probably would not be any grocery stores! A moment’s contemplation of the difficulty of life in a barter economy will demonstrate why human societies invariably select something—sometimes more than one thing—to serve as a medium of exchange, just as prisoners in federal penitentiaries accepted mackerel.

A Unit of Account

Ask someone in the United States what he or she paid for something, and that person will respond by quoting a price stated in dollars: “I paid $75 for this radio,” or “I paid $15 for this pizza.” People do not say, “I paid five pizzas for this radio.” That statement might, of course, be literally true in the sense of the opportunity cost of the transaction, but we do not report prices that way for two reasons. One is that people do not arrive at places like Radio Shack with five pizzas and expect to purchase a radio. The other is that the information would not be very useful. Other people may not think of values in pizza terms, so they might not know what we meant. Instead, we report the value of things in terms of money.

Money serves as a unit of account , which is a consistent means of measuring the value of things. We use money in this fashion because it is also a medium of exchange. When we report the value of a good or service in units of money, we are reporting what another person is likely to have to pay to obtain that good or service.

A Store of Value

The third function of money is to serve as a store of value , that is, an item that holds value over time. Consider a $20 bill that you accidentally left in a coat pocket a year ago. When you find it, you will be pleased. That is because you know the bill still has value. Value has, in effect, been “stored” in that little piece of paper.

Money, of course, is not the only thing that stores value. Houses, office buildings, land, works of art, and many other commodities serve as a means of storing wealth and value. Money differs from these other stores of value by being readily exchangeable for other commodities. Its role as a medium of exchange makes it a convenient store of value.

Because money acts as a store of value, it can be used as a standard for future payments. When you borrow money, for example, you typically sign a contract pledging to make a series of future payments to settle the debt. These payments will be made using money, because money acts as a store of value.

Money is not a risk-free store of value, however. We saw in the chapter that introduced the concept of inflation that inflation reduces the value of money. In periods of rapid inflation, people may not want to rely on money as a store of value, and they may turn to commodities such as land or gold instead.

Types of Money

Although money can take an extraordinary variety of forms, there are really only two types of money: money that has intrinsic value and money that does not have intrinsic value.

Commodity money is money that has value apart from its use as money. Mackerel in federal prisons is an example of commodity money. Mackerel could be used to buy services from other prisoners; they could also be eaten.

Gold and silver are the most widely used forms of commodity money. Gold and silver can be used as jewelry and for some industrial and medicinal purposes, so they have value apart from their use as money. The first known use of gold and silver coins was in the Greek city-state of Lydia in the beginning of the seventh century B.C. The coins were fashioned from electrum, a natural mixture of gold and silver.

One disadvantage of commodity money is that its quantity can fluctuate erratically. Gold, for example, was one form of money in the United States in the 19th century. Gold discoveries in California and later in Alaska sent the quantity of money soaring. Some of this nation’s worst bouts of inflation were set off by increases in the quantity of gold in circulation during the 19th century. A much greater problem exists with commodity money that can be produced. In the southern part of colonial America, for example, tobacco served as money. There was a continuing problem of farmers increasing the quantity of money by growing more tobacco. The problem was sufficiently serious that vigilante squads were organized. They roamed the countryside burning tobacco fields in an effort to keep the quantity of tobacco, hence money, under control. (Remarkably, these squads sought to control the money supply by burning tobacco grown by other farmers.)

Another problem is that commodity money may vary in quality. Given that variability, there is a tendency for lower-quality commodities to drive higher-quality commodities out of circulation. Horses, for example, served as money in colonial New England. It was common for loan obligations to be stated in terms of a quantity of horses to be paid back. Given such obligations, there was a tendency to use lower-quality horses to pay back debts; higher-quality horses were kept out of circulation for other uses. Laws were passed forbidding the use of lame horses in the payment of debts. This is an example of Gresham’s law: the tendency for a lower-quality commodity (bad money) to drive a higher-quality commodity (good money) out of circulation. Unless a means can be found to control the quality of commodity money, the tendency for that quality to decline can threaten its acceptability as a medium of exchange.

But something need not have intrinsic value to serve as money. Fiat money is money that some authority, generally a government, has ordered to be accepted as a medium of exchange. The currency —paper money and coins—used in the United States today is fiat money; it has no value other than its use as money. You will notice that statement printed on each bill: “This note is legal tender for all debts, public and private.”

Checkable deposits , which are balances in checking accounts, and traveler’s checks are other forms of money that have no intrinsic value. They can be converted to currency, but generally they are not; they simply serve as a medium of exchange. If you want to buy something, you can often pay with a check or a debit card. A check is a written order to a bank to transfer ownership of a checkable deposit. A debit card is the electronic equivalent of a check. Suppose, for example, that you have $100 in your checking account and you write a check to your campus bookstore for $30 or instruct the clerk to swipe your debit card and “charge” it $30. In either case, $30 will be transferred from your checking account to the bookstore’s checking account. Notice that it is the checkable deposit, not the check or debit card, that is money . The check or debit card just tells a bank to transfer money, in this case checkable deposits, from one account to another.

What makes something money is really found in its acceptability, not in whether or not it has intrinsic value or whether or not a government has declared it as such. For example, fiat money tends to be accepted so long as too much of it is not printed too quickly. When that happens, as it did in Russia in the 1990s, people tend to look for other items to serve as money. In the case of Russia, the U.S. dollar became a popular form of money, even though the Russian government still declared the ruble to be its fiat money.

The term money , as used by economists and throughout this book, has the very specific definition given in the text. People can hold assets in a variety of forms, from works of art to stock certificates to currency or checking account balances. Even though individuals may be very wealthy, only when they are holding their assets in a form that serves as a medium of exchange do they, according to the precise meaning of the term, have “money.” To qualify as “money,” something must be widely accepted as a medium of exchange.

Measuring Money

The total quantity of money in the economy at any one time is called the money supply . Economists measure the money supply because it affects economic activity. What should be included in the money supply? We want to include as part of the money supply those things that serve as media of exchange. However, the items that provide this function have varied over time.

Before 1980, the basic money supply was measured as the sum of currency in circulation, traveler’s checks, and checkable deposits. Currency serves the medium-of-exchange function very nicely but denies people any interest earnings. (Checking accounts did not earn interest before 1980.)

Over the last few decades, especially as a result of high interest rates and high inflation in the late 1970s, people sought and found ways of holding their financial assets in ways that earn interest and that can easily be converted to money. For example, it is now possible to transfer money from your savings account to your checking account using an automated teller machine (ATM), and then to withdraw cash from your checking account. Thus, many types of savings accounts are easily converted into currency.

Economists refer to the ease with which an asset can be converted into currency as the asset’s liquidity . Currency itself is perfectly liquid; you can always change two $5 bills for a $10 bill. Checkable deposits are almost perfectly liquid; you can easily cash a check or visit an ATM. An office building, however, is highly illiquid. It can be converted to money only by selling it, a time-consuming and costly process.

As financial assets other than checkable deposits have become more liquid, economists have had to develop broader measures of money that would correspond to economic activity. In the United States, the final arbiter of what is and what is not measured as money is the Federal Reserve System. Because it is difficult to determine what (and what not) to measure as money, the Fed reports several different measures of money, including M1 and M2.

M1 is the narrowest of the Fed’s money supply definitions. It includes currency in circulation, checkable deposits, and traveler’s checks. M2 is a broader measure of the money supply than M1. It includes M1 and other deposits such as small savings accounts (less than $100,000), as well as accounts such as money market mutual funds (MMMFs) that place limits on the number or the amounts of the checks that can be written in a certain period.

M2 is sometimes called the broadly defined money supply, while M1 is the narrowly defined money supply. The assets in M1 may be regarded as perfectly liquid; the assets in M2 are highly liquid, but somewhat less liquid than the assets in M1. Even broader measures of the money supply include large time-deposits, money market mutual funds held by institutions, and other assets that are somewhat less liquid than those in M2. Figure 24.1 “The Two Ms: October 2010” shows the composition of M1 and M2 in October 2010.

Figure 24.1 The Two Ms: October 2010

M1, the narrowest definition of the money supply, includes assets that are perfectly liquid. M2 provides a broader measure of the money supply and includes somewhat less liquid assets. Amounts represent money supply data in billions of dollars for October 2010, seasonally adjusted.

Source : Federal Reserve Statistical Release H.6, Tables 3 and 4 (December 2, 2010). Amounts are in billions of dollars for October 2010, seasonally adjusted.

Credit cards are not money. A credit card identifies you as a person who has a special arrangement with the card issuer in which the issuer will lend you money and transfer the proceeds to another party whenever you want. Thus, if you present a MasterCard to a jeweler as payment for a $500 ring, the firm that issued you the card will lend you the $500 and send that money, less a service charge, to the jeweler. You, of course, will be required to repay the loan later. But a card that says you have such a relationship is not money, just as your debit card is not money.

With all the operational definitions of money available, which one should we use? Economists generally answer that question by asking another: Which measure of money is most closely related to real GDP and the price level? As that changes, so must the definition of money.

In 1980, the Fed decided that changes in the ways people were managing their money made M1 useless for policy choices. Indeed, the Fed now pays little attention to M2 either. It has largely given up tracking a particular measure of the money supply. The choice of what to measure as money remains the subject of continuing research and considerable debate.

Key Takeaways

• Money is anything that serves as a medium of exchange. Other functions of money are to serve as a unit of account and as a store of value.
• Money may or may not have intrinsic value. Commodity money has intrinsic value because it has other uses besides being a medium of exchange. Fiat money serves only as a medium of exchange, because its use as such is authorized by the government; it has no intrinsic value.
• The Fed reports several different measures of money, including M1 and M2.

Which of the following are money in the United States today and which are not? Explain your reasoning in terms of the functions of money.

• A Van Gogh painting

Case in Point: Fiat-less Money

Figure 24.2

Michael Mandiberg – 1 million iraqi dinar – CC BY-SA 2.0.

“We don’t have a currency of our own,” proclaimed Nerchivan Barzani, the Kurdish regional government’s prime minister in a news interview in 2003. But, even without official recognition by the government, the so-called “Swiss” dinar certainly seemed to function as a fiat money. Here is how the Kurdish area of northern Iraq, during the period between the Gulf War in 1991 and the fall of Saddam Hussein in 2003, came to have its own currency, despite the pronouncement of its prime minister to the contrary.

After the Gulf War, the northern, mostly Kurdish area of Iraq was separated from the rest of Iraq though the enforcement of the no-fly-zone. Because of United Nations sanctions that barred the Saddam Hussein regime in the south from continuing to import currency from Switzerland, the central bank of Iraq announced it would replace the “Swiss” dinars, so named because they had been printed in Switzerland, with locally printed currency, which became known as “Saddam” dinars. Iraqi citizens in southern Iraq were given three weeks to exchange their old dinars for the new ones. In the northern part of Iraq, citizens could not exchange their notes and so they simply continued to use the old ones.

And so it was that the “Swiss” dinar for a period of about 10 years, even without government backing or any law establishing it as legal tender, served as northern Iraq’s fiat money. Economists use the word “ fiat ,” which in Latin means “let it be done,” to describe money that has no intrinsic value. Such forms of money usually get their value because a government or authority has declared them to be legal tender, but, as this story shows, it does not really require much “fiat” for a convenient, in-and-of-itself worthless, medium of exchange to evolve.

What happened to both the “Swiss” and “Saddam” dinars? After the Coalition Provisional Authority (CPA) assumed control of all of Iraq, Paul Bremer, then head of the CPA, announced that a new Iraqi dinar would be exchanged for both of the existing currencies over a three-month period ending in January 2004 at a rate that implied that one “Swiss” dinar was valued at 150 “Saddam” dinars. Because Saddam Hussein’s regime had printed many more “Saddam” dinars over the 10-year period, while no “Swiss” dinars had been printed, and because the cheap printing of the “Saddam” dinars made them easy to counterfeit, over the decade the “Swiss” dinars became relatively more valuable and the exchange rate that Bremer offered about equalized the purchasing power of the two currencies. For example, it took about 133 times as many “Saddam” dinars as “Swiss” dinars to buy a man’s suit in Iraq at the time. The new notes, sometimes called “Bremer” dinars, were printed in Britain and elsewhere and flown into Iraq on 22 flights using Boeing 747s and other large aircraft. In both the northern and southern parts of Iraq, citizens turned in their old dinars for the new ones, suggesting at least more confidence at that moment in the “Bremer” dinar than in either the “Saddam” or “Swiss” dinars.

Sources : Mervyn A. King, “The Institutions of Monetary Policy” (lecture, American Economics Association Annual Meeting, San Diego, January 4, 2004), available at http://www.bankofengland.co.uk/speeches/speech208.pdf . Hal R. Varian, “Paper Currency Can Have Value without Government Backing, but Such Backing Adds Substantially to Its Value,” New York Times , January 15, 2004, p. C2.

Answer to Try It! Problem

• Gold is not money because it is not used as a medium of exchange. In addition, it does not serve as a unit of account. It may, however, serve as a store of value.
• A Van Gogh painting is not money. It serves as a store of value. It is highly illiquid but could eventually be converted to money. It is neither a medium of exchange nor a unit of account.
• A dime is money and serves all three functions of money. It is, of course, perfectly liquid.

Principles of Economics Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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What Is Money? Definition, History, Types, and Creation

What Is Money?

Money is any item or medium of exchange that symbolizes perceived value. As a result, it is accepted by people for the payment of goods and services, as well as the repayment of loans. Money makes the world go 'round. Economies rely on money to facilitate transactions and to power financial growth. Typically, it is economists who define money, where it comes from, and what it's worth. Here are the multifaceted characteristics of money.

Key Takeaways

• Money is a medium of exchange; it allows people and businesses to obtain what they need to live and thrive.
• Bartering was one way that people exchanged goods for other goods before money was created.
• Like gold and other precious metals, money has worth because for most people it represents something valuable.
• Fiat money is government-issued currency that is not backed by a physical commodity but by the stability of the issuing government.
• Above all, money is a unit of account - a socially accepted standard unit with which things are priced.

Medium of Exchange

Before the development of a medium of exchange —that is, money—people would barter to obtain the goods and services they needed. Two individuals, each possessing some goods the other wanted, would enter into an agreement to trade.

Early forms of bartering, however, do not provide the transferability and divisibility that makes trading efficient. For instance, if someone has cows but needs bananas, they must find someone who not only has bananas but also the desire for meat. What if that individual finds someone who has the need for meat but no bananas and can only offer potatoes? To get meat, that person must find someone who has bananas and wants potatoes, and so on.

The lack of transferability of bartering for goods is tiring, confusing, and inefficient. But that is not where the problems end; even if the person finds someone with whom to trade meat for bananas, they may not consider a bunch of bananas to be worth a whole cow. Such a trade requires coming to an agreement and devising a way to determine how many bananas are worth certain parts of the cow.

Commodity money solved these problems. Commodity money is a type of good that functions as currency. In the 17th and early 18th centuries, for example, American colonists used beaver pelts and dried corn in transactions. Possessing generally accepted values, these commodities were used to buy and sell other things. The commodities used for trade had certain characteristics: they were widely desired and, therefore, valuable, but they were also durable, portable, and easily stored.

Another, more advanced example of commodity money is a precious metal such as gold. For centuries, gold was used to back paper currency—up until the 1970s. In the case of the U.S. dollar, for example, this meant that foreign governments were able to take their dollars and exchange them at a specified rate for gold with the U.S. Federal Reserve. What's interesting is that, unlike the beaver pelts and dried corn (which can be used for clothing and food, respectively), gold is precious purely because people want it. It is not necessarily useful—you can't eat gold, and it won't keep you warm at night, but the majority of people think it is beautiful, and they know others think it is beautiful. So, gold is something that has worth. Gold, therefore, serves as a physical token of wealth based on people's perceptions.

This relationship between money and gold provides insight into how money gains its value—as a representation of something valuable.

Impressions Create Everything

The second type of money is fiat money , which does not require backing by a physical commodity. Instead, the value of fiat currencies is set by supply and demand and people's faith in its worth. Fiat money developed because gold was a scarce resource, and rapidly growing economies growing couldn't always mine enough to back their currency supply requirements. For a booming economy, the need for gold to give money value is extremely inefficient, especially when its value is really created by people's perceptions.

Fiat money becomes the token of people's perception of worth, the basis for why money is created. An economy that is growing is apparently succeeding in producing other things that are valuable to itself and other economies. The stronger the economy, the stronger its money will be perceived (and sought after) and vice versa. However, people's perceptions must be supported by an economy that can produce the products and services that people want.

For example, beginning in 1971, the U.S. dollar was taken off the gold standard—the dollar was no longer redeemable in gold, and the price of gold was no longer fixed to any dollar amount. This was made official in 1976. This meant that it was now possible to create more paper money than there was gold to back it; the health of the U.S. economy backed the dollar's value. If the economy stalls, the value of the U.S. dollar will drop both domestically through inflation and internationally through currency exchange rates. The implosion of the U.S. economy would plunge the world into a financial dark age, so many other countries and entities are working tirelessly to ensure that never happens.

Today, the value of money (not just the dollar, but most currencies) is decided purely by its purchasing power , as dictated by inflation. That is why simply printing new money will not create wealth for a country. Money is created by a kind of a perpetual interaction between real, tangible things, our desire for them, and our abstract faith in what has value. Money is valuable because we want it, but we want it only because it can get us a desired product or service.

How Is Money Measured?

But exactly how much money is out there, and what forms does it take? Economists and investors ask this question to determine whether there is inflation or deflation. Money is separated into three categories so that it is more discernible for measurement purposes:

• M1 – This category of money includes all physical denominations of coins and currency; demand deposits, which are checking accounts and NOW accounts; and travelers' checks. It also includes other forms of liquid deposits and assets such as savings accounts. This category of money is the narrowest of the three, and is essentially the money used to buy things and make payments (see the "active money" section below).
• M2 – With broader criteria, this category adds all the money found in M1 to all time-related deposits, many types of retirement accounts, and non-institutional money market funds. This category represents money that can be readily transferred into cash.
• M3 – The broadest class of money, M3 combines all money found in the M2 definition and adds to it all large time deposits, institutional money market funds, short-term repurchase agreements, along with other larger liquid assets. M3 indicates a country's money supply or the total amount of money within an economy.

Active Money

The M1 category includes what's known as active money—the total value of coins and paper currency in circulation as well as liquid deposits and accounts. The amount of active money fluctuates seasonally, monthly, weekly, and daily. In the United States, Federal Reserve Banks distribute new currency for the U.S. Treasury Department. Banks lend money out to customers, which becomes active money once it is actively circulated.

The variable demand for cash equates to a constantly fluctuating active money total. For example, people typically cash paychecks or withdraw from ATMs over the weekend, so there is more active cash on a Monday than on a Friday. The public demand for cash declines at certain times—following the December holiday season, for example.

How Money Is Created

We have discussed why and how money, a representation of perceived value, is created in the economy, but another important factor concerning money and the economy is how a country's central bank (the central bank in the United States is the Federal Reserve or the Fed) can influence and manipulate the money supply.

If the Fed wants to increase the amount of money in circulation, perhaps to boost economic activity, the central bank can, of course, print it. However, the physical bills are only a small part of the money supply.

Another way for the central bank to increase the money supply is to buy government fixed-income securities in the market. When the central bank buys these government securities, it puts money into the marketplace, and effectively into the hands of the public. How does a central bank such as the Fed pay for this? As strange as it sounds, the central bank simply creates the money and transfers it to those selling the securities. Alternatively, the Fed can lower interest rates allowing banks to extend low-cost loans or credit—a phenomenon known as cheap money—and encouraging businesses and individuals to borrow and spend.

To shrink the money supply, perhaps to reduce inflation, the central bank does the opposite and sells government securities. The money with which the buyer pays the central bank is essentially taken out of circulation. Keep in mind that we are generalizing in this example to keep things simple.

A central bank cannot print money without end. If too much money is issued, the value of that currency will drop consistent with the law of supply and demand.

Remember, as long as people have faith in the currency, a central bank can issue more of it. But if the Fed issues too much money, the value will go down, as with anything that has a higher supply than demand. Therefore, the central bank cannot simply print money as it wants.

The History of American Money

Currency wars.

In the 17th century, Great Britain was determined to keep control of both the American colonies and the natural resources they controlled. To do this, the British limited the money supply and made it illegal for the colonies to mint coins of their own. Instead, the colonies were forced to trade using English bills of exchange that could only be redeemed for English goods. Colonists were paid for their goods with these same bills, effectively cutting them off from trading with other countries.

In response, the colonies regressed to a barter system using ammunition, tobacco, nails, pelts, and anything else that could be traded. Colonists also gathered whatever foreign currencies they could, the most popular being the large, silver Spanish dollars. These were called pieces of eight because, when you had to make change, you pulled out your knife and hacked it into eight bits. From this, we have the expression "two bits," meaning a quarter of a dollar.

Massachusetts Money

Massachusetts was the first colony to defy the mother country. In 1652, the state minted its own silver coins including the Oak Tree and Pine Tree shillings. The state circumvented the British law stating that only the monarch of the British empire could issue coins by dating all their coins in 1652, a period when there was no monarch. In 1690, Massachusetts also issued the first paper money calling it bills of credit.

Tensions between America and Britain continued to mount until the Revolutionary War broke out in 1775. The colonial leaders declared independence and created a new currency called Continentals to finance their side of the war. Unfortunately, each government printed as much money as it needed without backing it to any standard or asset, so the Continentals experienced rapid inflation and became worthless. This experience discouraged the American government from using paper money for almost a century.

Aftermath of the Revolution

The chaos from the Revolutionary War left the new nation's monetary system a complete wreck. Most of the currencies in the newly formed United States of America were useless. The problem wasn't resolved until 13 years later in 1788 when Congress was granted constitutional powers to coin money and regulate its value. In 1792, the Coinage Act was passed establishing the first national mint which created a national monetary system and unit of money, the dollar. There was also a bimetallic standard, meaning that both silver and gold could be valued in and used to back paper dollars.

It took years to get all the foreign coins as well as competing state and local bank currencies out of circulation. Banks issued their own notes during this time period, which was technically illegal as only Congress and the federal government had this power. Most of these banks issued more notes than they had coin to cover, as a result these notes often traded at less than face value.

In the 1860s, the U.S. government created $450 million in legal tender to finance its battle against the Confederacy in the American Civil War. These were called greenbacks because their backs were printed in green. The government-backed this currency and stated that it could be used to pay back both public and private debts. The value did, however, fluctuate according to the North's success or failure at certain stages in the war.

Confederate dollars, issued by the seceding states during the 1860s, followed the fate of the Confederacy and were worthless by the end of the war.

Aftermath of the Civil War

In February 1863, the U.S. Congress passed the National Bank Act. This act established a monetary system whereby national banks issued notes backed by U.S. government bonds. The U.S. Treasury then worked to get state bank notes out of circulation so that the national bank notes would become the only currency.

During this period of rebuilding, there was debate over the bimetallic standard. Some advocated using just silver to back the dollar, others advocated for gold. The situation was resolved in 1900 when the Gold Standard Act was passed, which made gold the sole backing for the dollar. This backing meant that, in theory, you could take your paper money and exchange it for the corresponding value in gold. In 1913, the Federal Reserve was created and given the power to steer the economy by controlling the money supply and interest rates on loans.

What Does Money Symbolize?

In an economic context, money symbolizes perceived value. This allows money to be used as a means of exchanging goods and services. On a personal level, money can symbolize intangible qualities, including wealth, safety, status, and more.

What Is Liquidity?

Liquidity is a measure of how quickly an asset can be converted into legal tender. Cash is the most liquid of all assets. Short-term securities and assets in money market accounts follow. Less liquid assets include physical items like houses, cars, or jewelry. Though they can ultimately be converted into legal tender, it may take time to do so, and a conversion might come with depreciation in value.

What Is the Difference Between Money and Currency?

Money and currency are interrelated but different terms. Currency is one form of money. Often issued by a government, it is one type of payment that people can use within a jurisdiction. Money, however, refers more broadly to a system of perceived value, which allows for the exchange of goods and services.

The Bottom Line

Money has changed substantially since the days of shells and skins, but its main function hasn't changed at all. Regardless of what form it takes, money offers us a medium of exchange for goods and services and allows the economy to grow as transactions can be completed at greater speeds.

University of Notre Dame. " Commodity Money: Introduction ."

Congressional Research Service. " Brief History of the Gold Standard in the United States ."

Congressional Research Service. " Brief History of the Gold Standard in the United States ," Pages 9-13.

Congressional Research Service. " Brief History of the Gold Standard in the United States ," Page 13.

Federal Reserve. " Money Stock Measures – H.6 Release ."

Federal Reserve Bank of Richmond. " Money Supply ."

Federal Reserve Bank of St Louis. " What Is Quantitative Easing, and How Has It Been Used? "

Harvard Library. " Colonial Currency ."

Federal Reserve Bank of Philadelphia. " Money in Colonial Times ."

The Met. " Shilling ."

Harvard Library. " Continental Currency ."

United States Mint. " History of the U.S. Mint ."

Congressional Research Service. " Brief History of the Gold Standard in the United States ," Page 2.

American Numismatic Society. " A History of American Currency ."

Encyclopedia Britannica. " Greenback Movement ."

Harvard Library. " Civil War Currency ."

Federal Reserve Bank of San Francisco. " American Currency Exhibit: Civil War ."

Federal Reserve History. " National Banking Acts of 1863 and 1864 ."

Congressional Research Service. " Brief History of the Gold Standard in the United States ," Pages 8-9.

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Speech on Money for Students and Children

Speech on money.

Hello everyone, I am here to present a speech on Money. Money is anything that people use to buy goods and services. Money is also that people receive for selling their own things or services. Most countries have their own kind of money such as the United States has a dollar, Britain has pound and Indian has rupees. Money is also called by many other names such as currency or cash.

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Types of Money

There are different types of money as commodity money, convertible money, inconvertible money, bank deposit, and electronic money. Commodity money can be used for other purposes besides serving as a medium of exchange. Cattle, silk, gold, and silver are some examples of commodity money.

Convertible paper is money that can be converted into gold and silver. Inconvertible money is the money that we cannot convert into gold and silver. Notes and coins are inconvertible money. Such type of money is a country’s legal tender.

Money is an essential commodity that helps run our lives. Exchanging goods for goods is an older practice and without any money, we can buy anything we wish. Money has become important because people are trying to save wealth for their future needs. Rich people are rich as they know or realize the true value of money. It is a general saying that money stays in the hands of people who know its value.

Get the Huge list of 100+ Speech Topics here

Money also affects Relationships

There are many people who grow hatred between each other only because of money. There are also people who treat rich people with respect and poor people with disrespect. Women also prefer men who are rich and powerful for marriage. Thus money also has the power to make and break relationships.

It’s important to earn money but it’s also important to save money. Someone has rightly said that if you save money today, the money will save you in the future. If you work hard and spend all the money then it’s of no sense. Saved money can also help you in older age and in times of medical emergencies.

There are many schemes of government that encourages and help people who want to save a portion of their income as savings. Investment is also an option of saving.  One can adopt any kind of investment after proper consultation.

There are several ways to earn money but one should always concentrate on earning money through legal means. As said in our purans, that one should work to earn Gaja Laxmi, which will come slowly. It will come through legal means and stay for long. One should never work to earn money which comes from illegal means. This type of money will come quickly and will go more quickly.

At last, money makes the world revolve and function. Money satisfies our needs and gives us pleasure and satisfaction. Money can bring us everything but money is not everything. One should value relationships more than money. People and our relationship with each other are more important than money.

Money should be utilized for the betterment of society. Rich people should help and respect poor people. We should also inculcate in our children, habit of saving from an early age. Money, if used wisely and properly, will contribute to the building of a strong, developed and powerful nation.

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The Power of a Great Finance Presentation

It’s easy to think of a finance presentation as a necessary evil. Every once in a while, your team has to step away from your actual work and brief the executive suite on the state of the company’s financials. Everyone knows that it’s going to be dull, but it has to be done.

This type of thinking is understandable — most finance professionals have seen their share of glazed-over eyes and stifled yawns during the quarterly report. But it’s high time to start thinking of these presentations as an opportunity instead of a obligation.

Prophix is working to help finance teams upgrade their presentations, most recently by integrating  real-time data into PowerPoint . But a stellar presentation isn’t all about technology, or even all about the data.

We asked experts in finance and public speaking for their advice on making more compelling presentations. The result: the Pro Talks Video Series , a virtual classroom for powering up your next quarterly meeting. You can watch the first four videos right now, for free. And there’s more coming soon.

Not convinced? Here are four reasons to power up your presentations, featuring insight from our Pro Talks experts.

Four Reasons to Power Up Your Finance Presentations

Great finance presentations enlighten, engage, and empower executives to take positive action. The right type of presentation can showcase your department’s expertise and knowledge, paving the way for finance to take a more advisory role in the organization.

#1: To Demonstrate Career-Enhancing Skills

“The number one thing that distinguishes financial executives from other financial professionals is communication skills.”

“Soft skills” — like being able to communicate clearly and show empathy for an audience — are increasingly becoming a differentiator. A compelling finance presentation can demonstrate your mastery of soft skills in front of the people who could make a major difference in your career.Finance professionals need plenty of education and practical experience to do the job. These “hard skills” are crucial, but they’re not much of a differentiator when there’s a promotion on the line. Odds are most of the finance team has the same level of schooling and time on the job.

#2: To Persuade the Audience to Take Action

“The numbers do tell a story, and the more you can bring them to life and use them to tell the story of the business, the better that data will be understood.”

A powered-up presentation goes beyond reciting the numbers. It uses data to tell a story in a language that makes sense to your target audience. A presentation based on the principles of storytelling is energetic, immediate, even emotional. And it’s far more likely to persuade your audience to take action.The two goals of a finance presentation are to inform and to persuade . It’s saying, “This is where we are, this is where we’ve been, and here’s what we should do next.” The goal is to encourage your audience to take a specific course of action, or avoid a specific risk.What’s the point of a finance presentation? The easy answer is “to inform.” But if simply transferring data was the goal, you could just email a spreadsheet and call it a day.

#3: To Make Your Presentations Interactive & Engaging

“Executives don’t want to sit there in silence and not engage. Get your audience engaged in the conversation, make them feel part of it, and make sure the information is useful to them.”

In a traditional finance presentation, there can be a push and pull between what you want to present and what the audience wants to know about. You have to try to anticipate questions in advance, building out slides that you might not even use. If you’re off on your guesses, you have to dig back into the data while the audience waits… or worse, have to schedule a follow-up meeting.

A presentation with real-time data, on the other hand, can be far more interactive. There’s no need to wait for questions until the end, then make sure they’re limited to what’s on the slides. There’s no putting a pin in something for the next meeting. You can turn the meeting into a genuine conversation, with your audience an equal participant. By the end, your audience will have the information they need, will feel their time was valued, and will be more inclined to the action you’re proposing.

#4: To Take Control of the Data

“When you present, you get to control the narrative. You take people on the journey you want them to go on.”

As I said earlier, a great finance presentation is about more than just informing the audience. It’s about using data to make the case for a suggested course of action. It’s telling a story that captures your audience’s attention and leads them to a conclusion.

Let’s be clear: Your audience will reach a conclusion whether or not you take control of that journey. Even if your presentation is a dry and neutral recitation of numbers, the executive audience will still have to process the numbers and agree on a course of action. The presentation is your opportunity to put your department’s expertise to good use, to be an advisor instead of just a reporter.

Power Up Your Presentations

These are just four of many reasons to make your finance presentations more interactive, dynamic and compelling. Not only will you cut down on the number of distracted phone-pokers and yawners in the audience, you will make a better case for your department’s vision for the future of the organization. That type of presentation can help advance the business, your department–and your own career.

Get expert advice on powering up your presentations: Watch the Pro Talks Video Series .

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Prophix Versus Excel: A Side-by-Side Comparison

We’ve all heard the saying, ‘if it isn’t broken, don’t fix it.’ But what if there’s a better way? A way that is less prone to errors and reduces manual, repetitive tasks.   Let’s look at an example. It’s budgeting season. You turn on your computer...

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An expert's takeaways from day 1 of Michael Cohen's testimony

Katia Riddle

Ailsa Chang

NPR's Ailsa Chang talks with author and attorney Andrew Weissman about former President Trump's hush money trial in New York and the testimony of Michael Cohen, Donald Trump's former fixer and lawyer.

Copyright © 2024 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Will Donald Trump Testify in His Criminal Hush Money Trial?

A fter weeks of sounding off about his criminal trial outside of the courtroom, former President Donald Trump finally has a chance to make his case to the jury face-to-face. But it remains to be seen whether he will.

Trump is facing 34 felony counts of falsifying business records for what prosecutors allege was a scheme to cover up hush money payments made to women claiming they had a sexual relationship with him during his 2016 presidential bid – including porn star Stormy Daniels. Both Daniels and Trump’s former personal attorney, Michael Cohen, have testified in the case already.

Trump’s defense attorney Todd Blanche said Thursday they would finish questioning Cohen on Monday, meaning Trump could take the stand as early as Monday afternoon, if he chooses.

But attorneys for former President Donald Trump gave no clues on Thursday as to whether their client would testify on his own behalf next week.

What Trump’s Said About Testifying

Trump has had an evolving stance on the matter of testifying in his own defense.

In mid-April, Trump told reporters at a press conference with Speaker Mike Johnson that he would testify.

“Yeah I would testify, absolutely,” he said. “I’m testifying. I tell the truth. All I can do is tell the truth. And the truth is there’s no case – they have no case.”

Just two weeks later, Trump was less committed to testifying during an interview on Newsmax.

“I would if it’s necessary,” he said.

In early May, Trump indicated to reporters outside the courtroom that he couldn’t testify, but not because he didn’t want to.

"Well, I'm not allowed to testify, I'm under a gag order I guess, right?" he said. “I’d love to answer that question. It’s a very easy question. The easiest question so far. But I'm not allowed to testify. This judge, who is totally conflicted, has me under an unconstitutional gag order.”

Trump was referring to Judge Juan Merchan, who found Trump in contempt and fined him for violating his gag order nine times at that point. He has since fined Trump for an additional violation and warned of jail time for future violations.

But gag orders do not, in fact, prevent a defendant from testifying, as Merchan later pointed out .

“Any person who's accused of a crime has an absolute right to testify,” says Vida Johnson, co-director of the Criminal Justice Clinic at Georgetown Law. “He also has an absolute right not to testify, and the only person who controls that decision is the accused person himself.”

The day after his gag order comment, Trump clarified , and said the gag order won’t stop him from testifying, but it prevents him from “talking about people and responding when they say things about me."

Four days later on May 7, Trump said he would “probably” testify and that “I would like to,” in an interview with Spectrum.

Should Trump Take the Stand?

Someone who is unhappy with their gag order, as Trump is, might welcome the chance to get their side of the story out, says Johnson, a former defense attorney.

If Trump testified, he couldn’t talk about the judge’s daughter, court personnel, or members of the jury, but he could talk about the accusations made against him and the witnesses.

“He can use that as a way not only to convince the jury of his lack of guilt or his innocence, he also has this opportunity of free press, an opportunity for him to get his story out to the voters as well,” Johnson says

Molly Kalmus, adjunct professor at John Jay College of Criminal Justice, said people may decide to testify because they want their story heard.

“They want to say it with their voice,” she said. “They want to say it for themselves…They want to tell their story in their way.“

Former porn star Stormy Daniels, who herself testified for two days, encouraged Trump to testify in a post on social media.

“Real men respond to testimony by being sworn in and taking the stand in court,” she wrote. “Oh...wait. Nevermind.”

The Case For Keeping Quiet

Despite what’s depicted on TV court dramas, it’s actually uncommon for defendants to testify, legal observers say. In Kalmus' experience, none of her clients have testified in their own trial, and less than half of Johnson’s clients have.

One major reason defendants choose not to testify is because they would subject themself to cross-examination, potentially revealing inconsistencies in their story and putting themselves in an “unflattering light” in front of the jurors.

“It can expose any sort of character flaws that the defendant may have like rudeness, or a short temper, or a lack of intelligence, or incoherence, or disorganized thinking,” Johnson says.

Additionally, it’s possible the defendant inadvertently works against the defense’s theory during their testimony.

“Sometimes in their effort to tell their story in their way, they might veer off what the defense attorney has laid as the foundation in terms of their arguments,” Kalmus says.

Perhaps the best reason not to testify, Johnson says, is because they don’t have to.

“Anyone accused of a crime is presumed innocent. And it's the government and only the government has the burden of proof,” she says.

Copyright 2024 U.S. News & World Report

The Dow hit a new record. What it tells us about the economy, what it means for 401(k)s.

The Dow Jones Industrial Average hit a new milestone Friday, closing above 40,000 for the first time and underscoring the stock market's resilience despite volatile inflation and uncertainty surrounding the prospect of Federal Reserve interest rate cuts .

"The significance is psychological," says Jason Ware, chief investment officer of Albion Financial Group. For investors, "it makes us feel like we're" doing the right thing.

And for those not in the market, it's a clarion call. "Make sure you're invested in the market so you're benefitting from the compounding effects over time," he says. "You better be in the room."

The Dow closed up 134 points, or 0.34%, to end the day at 40,003.59. The S&P 500 gained 0.12% while the Nasdaq Composite slipped 0.074%. 

How is the Dow doing today?

The Dow's latest spike was prompted by Wednesday’s inflation report , which showed inflation cooling for the first time in months. Investors have taken that report as affirmation that the Fed could move forward with interest rate cuts as soon as September. 

Data showing softening retail sales and a stronger-than-expected first-quarter earnings reporting period have also bolstered investors’ confidence, according to Sam Stovall, chief investment strategist at investment research and analytics firm CFRA Research.

Why is the Dow up?

The Dow has gained more than 6% this year. Stocks had taken a tumble in April as investors grew concerned about the Fed pushing back interest rate cuts to deal with inflation's stickiness. The index began to recover this month as new reports indicated job growth slowing more than expected , cooling inflation, and Fed Chair Jerome Powell reiterating that more interest rate hikes are unlikely .

“Investors are anticipators. And they are enthusiastically anticipating a cut in interest rates,” Stovall said. “They are also calmed by the likelihood we will be avoiding a recession.”

CPI report: Inflation eases in April as prices fall for eggs, bacon and bread

What does Dow at 40,000 mean for my 401(k)?

While the 40,000 milestone is attention-grabbing, the number itself means little to investors.

“40,000 is a great milestone, but end of the day there isn’t much difference between 39,999 and 40k,” Ryan Detrick, chief market strategist at Carson Group, said in a statement emailed Thursday. “Still, this is a great reminder of how far we’ve come.

Last year, he says, investors kept hearing a recession was coming and stocks would do poorly. "This is another reminder that the investors who stick to their long-term plans and ignore the scary headlines will be rewarded."

But the arbitrary number means little for investors’ retirement funds. With only 30 blue-chip stocks, the index isn’t the best measure for 401(k) strength.

A better measure is the S&P 500 , since 401(k) accounts are more likely to include an S&P 500 index fund than one tied to the Dow. The stock market index tracks the performance of 500 of the largest public companies in the country.

The S&P 500 has been hitting its own milestones this year . The index ended the day above 5,300 for the first time Wednesday and closed at 5,303 Friday. 

What are the potential drawbacks to Dow 40,000?

The downside to Dow 40,000 is that it could spook some investors into thinking the market is pricey and may be poised for a pullback.

"If you're on the bearish side, you may think this is too high," Ware says.

The average price of stocks in the blue-chip index is 20 times projected earnings over the next 12 months, Ware says. That's above the five-year average price-to-earnings multiple of 19.2 and the 10-year multiple of 18, Ware says. So it's a bit expensive but not by much, he says.

And there are valid reasons for the hefty value, Ware says. The economy is still strong, corporate earnings have been solid and the Fed is expected to cut interest rates this year. Values are typically higher when the Fed shaves rates because it coaxes investors to move money into stocks from lower-yielding bonds and other fixed-income assets.

Generally, it's taken less and less time for the Dow to reach its historic milestones as the blue-chip index has risen because a jump of 10,000 becomes less in percentage terms.

It took 26 years or so for the Dow to climb from 1,000 to 10,000 and 17.8 years to go from 10,000 to 20,000 ‒ a period of slow growth that followed the dot-com bust in the early 2000s and the Great Recession of 2007-09.

It then took nearly four years for the Dow to clamber from 20,000 to 30,000 and about three years to get to 40,000 following the strong recovery from the pandemic.

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How much is each Premier League finishing position worth?

It is a busy weekend on  The Athletic — alongside our football coverage, you can follow live updates from the PGA Championship  and  Fury vs Usyk

In this age of PSR, FSR and other confusing financial acronyms, every penny counts for Premier League clubs.

That is why, although there may not appear to be much difference between coming 14th and 15th in the table, each finishing position matters a great deal.

Aside from the obvious — winning the title, avoiding relegation, qualifying for Europe — there are millions at stake per place in the Premier League so getting that all-important final result on Sunday could be crucial as clubs look ahead to the transfer window and try to avoid those pesky points deductions.

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Heading into the final round of fixtures, Liverpool (third), Aston Villa (fourth), West Ham United (ninth) and Sheffield United (20th) are the only teams whose final position is guaranteed.

So, with plenty still to play for other than pride on Sunday, The Athletic breaks down how much each position is likely to be worth.

How much do clubs earn in general?

The Premier League distributes hundreds of millions of pounds to teams as part of its club revenue distribution. A certain amount of that is fixed, with clubs earning an ‘equal share’ of the league’s income from its domestic and international broadcast deals.

The Premier League does not release these figures until after the season has finished. For the 2021-22 season, this came on July 1, 2022 but for last season, they were not published until February of this year. Using last year’s data, we can estimate what clubs can expect to receive for the 2023-24 season.

In 2022-23, each team’s equal share worked out at £31.2million ($39.1m) for the UK broadcast deal and £48m for the international agreement. Each team also banks £9.4m for their cut of the commercial payments. That means clubs were guaranteed £88.6million, regardless of where they finished.

That number increases with each time a club is picked for a televised fixture in the UK — where not all games are able to be shown live due to the 3pm blackout rule — which is known as a ‘facility fee’. This does not correlate to a team’s final position in the table — for example, 17th-placed Everton (£19.4m) earned more in facility fees than fifth-placed Brighton & Hove Albion (£14.4m) as they were on TV in the UK more times (22 vs 16). Perhaps unsurprisingly, champions Manchester City were shown live on TV in the UK the most (29 times, £33.8m), while 15th-placed Bournemouth were shown the least (11 times, £10.2m).

The Premier League's invisible games

How much is each position worth?

Again, based on last season’s figures, we can roughly estimate what clubs can expect to earn from their ‘merit payment’ — their financial reward for their finishing position in the league table.

It is, though, important to note that, although the league’s broadcast deals have not changed from this season to last, this calculation is not definitive and there are factors — such as inflation, fluctuating operating costs and parachute payments — that are likely to slightly impact the final figures.

Premier League clubs can expect to earn approximately £1.7million per place for their UK merit payment and just over £1.4million for the international merit payment, totalling £3.1million.

How does this compare to previous years?

The Premier League merit payments are significantly up compared to the 2021-22 season, which saw clubs earn just over £2m for their combined merit payments.

The main driving force behind the increase is the latest international broadcast deal the Premier League signed, which began in the 2022-23 season and runs until the end of the 2024-25 campaign.

From 2019 to 2022, the international deal was worth £4bn, with the domestic agreement coming in at £5bn.

But with the latest £5.05bn international deal , the domestic agreement is lower for the first time. That is set to change, though, at the end of next season with the Premier League agreeing a £6.7m domestic broadcasting deal which will run from the start of the 2025-26 campaign and run through to 2028-29.

Premier League final day – all you need to know

• Premier League title permuations
• European qualification permutations

(Top photo: Alex Livesey/Getty Images)

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Luke Bosher is a deputy news editor for The Athletic, based in London. He joined the company in 2020. Follow Luke on Twitter @ bosherL