Before we go on, it is important to define a few terms and establish a foundation. When most people think of money, they think of the green paper used to exchange for services and goods. But how does the financial system of America think of money? Money refers to anything that is generally accepted as payment for goods and services or in the settlement of debts. Money is what economist call a medium of exchange. An asset is a thing of value that can be owned. Money, like other assets, is a component of wealth, which is the sum of the value of assets. Although often used interchangeable in everyday speech, the terms money and wealth are NOT the same. The word money is also sometimes used to mean income. Income however is the flow of earnings over time, whereas money is stock. Income is measured over time, money is measured at a point in time.
Because money is an important determinant of economic activity, a measure of money is needed as a guide for monetary policy. But what is and what is not money is ambiguous. The definition of money can be broad or narrow. A narrow measure of money would be definitive money or actual coins and bills. A broader definition might also include checking accounts, savings accounts, or investments. Because no one definition is complete, the Federal Reserve has developed various measures of money, called monetary aggregates, which are broader than actual currency.
The narrowest aggregate is the M1 aggregate, which includes currency, travelers checks, and checking account deposits. M1 is the total of those assets that are traditionally considered part of the medium of exchange.
The M2 aggregate is the next broader aggregate after the M1. It includes all assets in M1 as well as other short-term investment accounts.
The M3 aggregate is an even broader measure of money that includes the assets in M2 and also some less liquid (liquidity refers to the ease with which one asset can be traded for another asset) assets such as large time deposits.
The broadest monetary aggregate is the L aggregate. It is more a measure of total liquid assets than a measure of money. The L aggregate includes all the assets in M3 as well as assets such as short-term U.S. treasury securities and commercial paper.
As we can see, what is actually money is much more complex than the simple definition of paper and coins. In order to take full advantage of the economic system in America, one must understand the foundations and principles of that system. Capitalism in a nut shell is based upon the amassing of assets. In a capitalistic system, assets equate with a form of freedom. Freedom to pursue the type of lifestyle desired. Freedom to gain access to those levels and places that your available resources allow. Freedom to determine how you will live.
The choices we make in how we use our financial resources can either be solid like a rock or sinking sand. Most people will only earn so much in a lifetime of work. After taxes and deductions, this is the amount of disposable assets. These disposable assets must provide for, shelter, food, and a host of other expenses required just to function from day to day. After all of this has been taken care of, what is left is the actual amount that can be used to address wants and desires. Whether it is a type of automoblie, a shirt, or savings; this is the amount of financial freedom an individual has. Once this actual amount of disposable assets is gone, so too is the freedom associated with it. The question then becomes what is more important, immediate gratification or a little gratification today; or long term gratification or a little gratification every day?
To utilize financial resources without regard to the impact it will have on the freedom that comes with it is to play without fully understanding the rules. Just as it would be foolish to play monoploy or Mancala without knowing the rules (because there would be little chance of winning), so too must the rules of capitalism be understood if what you work for is going to work for you.
On first sight, the figues and symbols look as if they are part of a new foreign language, one that requires a background in business to decipher. This collection of numbers and words is called the stock listing, and the information is easy to understand. The following consist of a list of terms and definitions that will help even a novice feel like a pro.
African American Financial Index
National Black Business Council
Click The Cipher to retun to the title page.