178 Unit 2 Managing Your Finances
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he economic system could not function without fi nancial institu-
tions. These institutions—including commercial banks, savings and
associations, and credit unions—are fi nancial go-betweens.
They keep money fl owing throughout the economy among consumers,
businesses, and government.
When people deposit money in a bank, that money does not sit in a
vault. The bank lends the money to other consumers and businesses. The
dollars may be loaned to consumers to help fi nance new cars, homes, col-
lege tuition, and other needs. Businesses may borrow the money for new
equipment and expansion. State and local governments may borrow to
build new highways, schools, and hospitals. The interaction that fi nan-
cial institutions create between consumers, businesses, and governments
keeps the economy alive, 8-1.
Without fi nancial institutions, consumers would probably keep their
cash under a mattress or locked in a safe. Money could not circulate eas-
ily. The nation’s money supply would shrink. Funds would not be avail-
able for consumer spending. Demand for goods and services would fall.
Businesses could not get the money to modernize plants and develop new
products. The economy would slow down. Jobs would become scarce. As
you can see, the economy depends on the fl ow of money and the services
fi nancial institutions provide.
This chapter looks at the many types of fi nancial institutions and
services and describes different types of checking accounts and special
checks. Later chapters cover other services of fi nancial institutions. Credit
Money Flow Through Financial Institutions
In Flow
(Depositors)
Out Flow
(Borrowers)
Consumer
loans
Business
loans
Government
loans
Results
(Uses of Capital)
Homes
Autos
Education
Travel
Taxes
Plant and equipment
Expansion
Acquisition
Business needs
Roads and highways
Schools
Hospitals
Public buildings
Government
projects and programs
Consumer
savings
Business
deposits
Government
deposits
Financial
Institutions
8-1
Financial institutions keep
money flowing through the
economy among consumers,
businesses, and government.