This weeks’ blog about currencies is a lead up to next week's blog about Cryptocurrencies. Having an appreciation for what regular currencies are, and how they change, provides the foundations for talking to your kids about cryptocurrencies.
As with many of my blogs, I have come up with a short story to help you teach your kids about currencies. At the end of the story, I’ve included a fun game to see if they can match banknotes to the correct country.
McDonald’s on the Island Story
Carly and Nom are pen pals and live on the complete opposite side of the world to each other.
They have been writing letters to each other for over 10 years. In their letters, they have been telling each other all about life in their countries. Turns out, their countries are completely different.
For many years they have both said "Once they both turn 18 they should meet each other". That time was now.
They decided to both fly to a country called Hawk Island, which is about half-way between their two countries. They were both excited and scared. Neither had ever left their own country before.
After their long flights, they both landed safely on Hawk Island and saw each other for the first time as they collected their suitcases. They hugged and straight away started talking about their trip and how different Hawk Island was from their countries.
As they were standing in everyone’s way, they thought it was best if they go and grab some food as they were both so hungry. They immediately saw a McDonalds.
As they were in the queue to order their food, Carly was in shock. “It only costs 50 to get a Big Mac here! In my country it costs 200 to get a Big Mac. This is amazing. It’s so cheap!”
Nom wasn’t so happy. “In my country it only costs 10 to get a Big Mac. This is going to be an expensive trip!”
Carly offered to buy Nom his Big Mac. She ordered the Big Macs and handed over her money. “Sorry Madame, we can’t accept your money here, you have to pay using Hawk Bucks!”
“Hawk Bucks! What are Hawk Bucks?” Carly asked.
“Hawk Bucks are the money we use here on Hawk Island. You’ll need to change your money over at the FOREIGN EXCHANGE counter over there” replied the McDonalds worker.
Neither Carly nor Nom realised that Hawk Island used different money. Then Nom realised that the banknotes Carly was holding looked different from the banknotes from his country.
They walked over to the FOREIGN EXCHANGE counter and asked the lady to change their money to Hawk Bucks. Carly handed over 1,000 but only got 250 Hawk Bucks.
“Excuse me! I gave you 1,000 but you only gave me 250 back. Please can I have the rest of my money?” Asked Carly.
“This is the right amount. You see, each country has its own money or CURRENCY. The money in one country isn’t the same value as the money from another country. Therefore, we have to change the money from one country to another so that it is fair in the other. In this case, to get 1 Hawk Buck you need 4 dollars from your country. This is known as the EXCHANGE RATE.” replied the kind lady.
Whilst at first it didn’t seem fair, once Carly thought about the price of a Big Mac, it started to make sense. To buy a Big Mac on Hawk Island costs 50 Hawk Bucks, which is the same as 200 dollars from her country. 200 dollars was the price of a Big Mac in her country so it did seem fair.
Nom also changed his money at the FOREIGN EXCHANGE counter. He was very happy when he changed 50 dollars from his country and got 250 Hawk Bucks back. In Nom’s case, to get 1 Hawk Buck you only need 0.2 dollars from his country (or, to put it another way, for 1 dollar from his country he would get 5 Hawk Dollars).
Again, when they thought about the price of a Big Mac, this made sense. In his country he could buy a Big Mac for 10 dollars, which is the same as buying a Big Mac for 50 Hawk Bucks.
Why is money different in different countries?
Nom and Carly then asked the lady why the money in different countries isn’t the same value.
The kind lady at the FOREIGN EXCHANGE counter explained “The value of the money in one country compared to another changes over time due to a number of different things. The first is that when a country gets richer over time, the price of things in that country start to cost more. This is called inflation. As not all countries get richer at the same time due to wars or the jobs available in that country, the price of things, such as Big Macs, changes at different speeds over time. To make sure it’s fair between countries, they change the EXCHANGE RATE. This means that if you have 10 Hawk Bucks, you can still buy a Big Mac in any country in the world”.
“The other reason the amount of money is different is due to how safe the money is in a particular country. If one country is very rich, then people will feel that money is safe as they will always be able to pay what they owe. If a country isn’t very rich, then people might feel the money isn’t as safe, as the government might not be able to pay what it owes people. So, people in a rich country might get more Hawk Bucks from their country’s dollars than people from another country.”
Nom and Carly thought about the last point the lady said. They started to talk about the letters they sent to each other describing their countries. It was clear their countries were completely different.
In Nom’s country, everyone seemed to drive cars and people mostly worked in offices. In Carly’s country, most people couldn’t afford cars so drove on motorbikes and worked on farms or in the fields.
Both Nom and Carly found learning about money from different countries really interesting but were now very hungry. They took their Hawk Bucks from the lady and went to get their Big Macs.
Notes about the story
I hope this short story helps you introduce the concept of currencies. This can be a really interesting topic for kids as it not only gets them thinking about money, it also gets them thinking about geography and economics (I appreciate not all kids will get excited by this but some certainly will!).
The use of Big Macs is only an example. The actual price of a Big Mac doesn’t work out to be exactly the same in each country (as the cost of labour, rent and ingredients varies from country to country which impacts the cost of a Big Mac in different countries). Although, the price shouldn’t be drastically different.
Over time, the exchange rate can change very quickly. One example is when the UK decided to leave the European Union (Brexit). The amount of US dollars you could get for £1 fell by 30%.
Game - Guest the bank notes
As mentioned in the story, countries have their own currencies. See if your kids can guess which countries / region the following currencies are from: (images taken from the chapter headings in Grandpa’s Fortune Fables).
Answers at the very end of this article.
As the world slowly starts to open up for international travel again, use any trips overseas with your family as a teachable moment about money. Kids love seeing different banknotes so don't just rely on your credit card to pay for everything. Use some cash and show it to your kids. Explain that one Euro or one US dollar isn’t the same as one pound sterling or one Hong Kong Dollar.
You can even let them know that one US dollar is currently the same as 23,000 Vietnamese Dong!!
As mentioned at the start of this blog, understanding currencies is really important when introducing the concept of cryptocurrencies which I’ll discuss next week.
Thanks for reading!
P.s. Looking for stocking filler ideas and an entertaining way to teach your kids about money? Make sure you grab a copy of my new book,Grandpa’s Fortune Fables.
Answers to the banknote game:
For an extended version of this game plus other games and worksheets for your kids to learn about money, check out our new Fortune Club.