We all know that money is used to pay for buying goods & services. But where do people get money from? We know Money doesn’t grow on trees. People earn money. Examples of how people earn money are: they might sell vegetables or cars, fix cars, cook food, act in movies & serials, play cricket, write software programs, take care of sick, clean the house etc This article is for children to understand How do People Earn Money
Most people use their talents and skills to earn money. People get money for making goods or providing goods and services. Some work for others and get paid at the end of the day or month. Some people earn money by working for themselves by running their own business. Businesses come in all shapes and sizes. Fruit seller, Maruti are both examples of business but of different size. This explains about earning . We shall know
- Story on when we value money,
- How people earn money by being an employee working for someone else ,
- World’s biggest employers in the world
- How people earn money by starting their own business,
- Factors on which person’s income depends ,
- Profit and Loss,
Do you know that word salary has come from Latin salrium. The word appeared in 1350-1400 in Middle English. It was money given to Roman soldiers to buy salt. Latin salrium is based on salrius which means “pertaining to salt” In those days, salt (regular ordinary table salt) was a prized and valuable commodity. If you’ve ever heard the phrase you are the salt of the earth or worth your salt both are referring to the high value of salt.
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Story: Realizing Value of Hard earned Money
We think it is so easy to earn money. We don’t think twice before asking our parents for new toys, books, clothes, gadgets. But have you thought about how much hard work your parents have put in earning money? Often we hear parents complaining that today’s children do not know the value of money. Are they right? In the story here Shyam realized how easy it is to spend the money but difficult to earn it.
There once lived a merchant, who had a handsome, intelligent but lazy son Shyam. Shyam used to spend his father’s hard earned money without thinking. One day his father asked him to earn Rs 5 and bring to him.
Shyam had no plans of working. He went to his mother. He asked his mother for Rs 5. His mother gave it to him happily. He took that coin to his father and said “I have got this coin”. Father took the coin and threw it in the well, he asked him to get another coin tomorrow.
This process is repeated, Shyam asked his grandmother, sister, brother. Every day his father used to take the coin and throw it in well. After realizing that Shyam is getting coins from his family members, his father forbade the family members to give coin to Shyam.
When no one gave coin to Shyam, he didn’t know what to do. So he went to the railway station and started picking up the luggage. It was difficult but he wanted to go to his father with the coin. At the end ofthe day, he took his coin to his father.
When his father was about to throw the coin in the well, he got angry. “Papa, I have struggled all day, worked hard to get this coin and you want to throw it in well. I shall not allow it”. Then his father smiled and said “Now you realize the value of hard earned money. So many days I threw coin but you didn’t say a word. Today you are cribbing because you had earned it. I also have to work hard every day to earn for you and your family. Just imagine what I feel when you spend my hard earned money without thinking. That day Shyam realized his mistake.
Do you think it is easy to earn money? Have you tried earning money? Was it easy?
Ways of Earning Money
“How do people in your family earn money?” When asked some of the answers we got were:
- “My father works for Infosys”.
- “My father works for AirTel. He is the CEO of South division”
- “My mother works in State Bank of India”,
- “My father works in Army. He is Major”
- “My mother is a teacher for Delhi Public School.”
- “My mother is a doctor who runs her own clinic”,
- “My grandfather runs a shop selling clothes” ,
- “My father is a plumber. ”
- “My father is a business man. He has offices in many places in India”
This YouTube Video talks about different types of Jobs
People go to work and earn money. Most people use their talents and skills to earn money. Different methods of earning money require different skills, different educations and different type of people. The three broad ways in which people earn money are as follows:
- Working for someone else or Employee
- Working for themselves or Self Employed
- Running a business.
How People Earn Money as Employee
When a person works for someone else or company. He is then said to hold a job and is called Employee. Money that is paid is called as Salary or Income or Wage. The person or the company he or she works for is called Employer. In above conversation , the father who works for Infosys/Airtel or mother who works for Maruti or father who works in Army, mother is a teacher, all are holding a job and hence are employees. While Infosys, AirTelm Maruti, Army and DPS School are employers.
World’s biggest employers in the world
|United States Department of Defense||United States|
|People’s Liberation Army||China|
|McDonald’s[note 1]||1.9 million||1.7 million||United States|
|National Health Service||1.7 million||1.4 million||United Kingdom|
|China National Petroleum Corporation||1.6 million||1.7 million||China|
|State Grid Corporation of China||1.5 million||1.6 million||China|
|Indian Armed Forces||India|
|Hon Hai Precision Industry (Foxconn)||1.3 million||0.8 million||Taiwan|
Some people earn money by working for themselves, they start their own business.Business is an organization that provides goods and/or services to people. In above conversations, AirTel, State Bank of India, Infosys, doctor, plumber, shopkeeper, fruit seller are all businesses. Businesses are of different sizes example: Fruit seller, shopkeeper and Maruti.
In business the owner takes the risk & gets rewards. For example, the shop-keeper would be worried if customers are not coming to his shop or not buying. But salesman in his shop would not be so worried because his job is to sell once the customers come in the shop. The responsibility of running the business is not his, he doesn’t have to get shoes or buy or rent a shop or advertise. He would get his salary at end of month. He would be affected if shop-keeper decides to close the shop or fire him.
The difference between different kinds of business is shown below
A person who earns money working for him/herself. These people are Self-Employed. In the above example the mother who is a doctor and runs her own clinic, the grandfather, who runs his own shop, the plumber are Self-employed while AirTel Maruti would be considered as Businesses. “Are you building a pipeline or hauling bucket” shows the difference between Self Employed and Business.
Factors influencing income of a person
Most of the people use their talents and skills to work for others and get paid at the end of the day or month. The income of a person depends on following factors
1) Knowledge i.e. what he or she has studied. Did he/she study engineering or he/she studied medicines to become a doctor?
2) Talents What talents do the person has and how he or she uses it? For example, Sachin Tendulkar started playing cricket for India when he was only 14 years old.
3) Career choice Anil Kumble, Rahul Dravid studied engineering but found that they enjoy cricket more. Before joining films, Soha Ali Khan worked in the field of investment banking.
Usually, people with more education and skills earn more money than people with less education and fewer skills. Hence parents often say, Study well so that you can get a good job. Every job needs special knowledge and skills.
For example: Maid :
- Clean vessels, swaps and sweeps every day.
- No education required.
- Earns around 2000 Rs a month. It varies depending on number of rooms in the house, number of people in the house or the place one’s stay in for example maid in Bangalore would earn more in IndraNagar than in old part of Bangalore like RajaJi Nagar. Maids salary also depends on the city they work in for example :Maids are cheaper in Kolkata than in Delhi.
Image below shows how teachers, software engineer, radio jockey, models earn
The businessman earns by selling things at the higher cost than he bought it. Let’s take an example:
The Shopkeeper buys a dress for Rs 300 and sells for Rs 350. Then 50 Rs (350 -300 Rs) is the money he has earned. This is called as Profit. Rs 50 are the money he has earned on one dress. He sells many dresses. Say in a day he sells 10 dresses so he has earned Rs 500(Rs 50 X 10). In a month say is he sells 3000 dresses then he has earned Rs 1,50,000 (50 X 3000)
Note: From the money earned he has to pay salary to his sales persons, pay the rent for the shop, pay electricity bill. So the money he earns is actually less than then Rs 50 per dress. It is also not necessary that every time he makes profit. There are times when he sells for less than cost price then he has Loss . Hence business has both rewards and risks
Selling Price (S.P) : The price at which goods/services are sold
Cost Price (C.P) : The expenses occurred in making a product (or providing a service) and it includes the price of the raw material.
Operating expenses or Overhead expenses: are fixed expenses, such as rent, and utilities.
Profit = Selling Price (S.P) – Cost Price (C.P) -Expense i.e If the shop sells a thing for more than they paid for it, then the difference is the ‘Profit’
Loss = Cost Price (C.P) – Selling Price (S.P)+Expense If the shop sells a thing for less than they paid for it, then the difference is the ‘Loss’
Both profit and loss can be expressed either in Rupees, OR as a percentage of the cost price.
Profit Percentage = (Profit /Cost Price (C.P)) * 100
Problem of Profit and Loss
Profit is important to a business because it is a reward for the owners of the business.They have taken risks with their money and time. If there was no profit, then there would be little point in putting more money into the business, they might as well put the money into a bank. Profit can be used to make business bigger example buy more things, improve technology.