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The Financial Crisis |
News Archive
Background, history, and definitions
The financial crisis refers to problems with money that people in many countries have been dealing with recently. Finance (or financial) is a word that usually refers to big amounts of money. This is all part of the economy.
Even for grown-ups the economy can be quite confusing, but it is basically just a term used to talk about money and the way people buy, sell, and make things. The economy naturally goes through cycles depending on how much people buy, sell, and make! A recession refers to the economy when it's moving at a slower speed and fewer people are buying, selling, and producing new things. In simple terms, what is happening right now is that we're having a problem with money (financial crisis) because fewer people are buying, selling, and producing new things (we're in a recession).
Why this recession began
Every time there is a recession, there are lots of things that can cause it to begin. Economists (people who study the economy) have said that the recession we are in right now began in December 2007.
One thing that led to this recession has to do with the way people were borrowing money in recent years. A division of the American government called the Federal Reserve Board decided to make it easier for people to borrow money because they wanted to make sure people would invest in things.Investing refers to people or companies who give out money to fund a project in the hopes that the project will succeed and bring in a profit of even more money for the investors to earn! Unfortunately, allowing people to borrow money more easily came with some consequences no one had been able to predict.
The first of these consequences was that some people or companies who borrowed money were not actually able to pay it back. This was particularly the case with lots of people who had borrowed money to buy houses, which is why you might have also heard about the housing crisis” or mortgage problems.” (Mortgage refers to money borrowed and being paid back for the purchase of a house.) In some cases, banks and other financial companies were then allowed to buy the mortgages and loans that weren't being paid for, thinking they would end up making an even bigger profit from them in the end.
Unfortunately, this only made the problem even worse and the slow economy we're having now is the result of all the money that was loaned too easily, and the companies who bought the loans that no one could pay! Lots of companies and banks have recently had to close down because they were not earning the money they thought they would. Many people have lost their jobs because their companies could not afford to stay open or to continue paying so many employees. Because the economy is global, this affected people and businesses in other countries too.
Even though this all might sound like an awful lot of wrongdoing, this amount of buying, selling, investing, trading, and sharing is common in economics. There is no one person at fault for the bad loans and purchases; if anyone had known that it would happen this way, it certainly would have been stopped!
Now what?
No one knows exactly how long this recession will last, but luckily lots of smart, trained, and experienced people are working to find ways to get money moving again more quickly. While it is affecting many people right now and will continue to have effects for some time longer, it is indeed a normal part of a cycle that will circle around again eventually!
How can I help?
There is nothing that any one person (no matter how big or how small) can do to end the recession, but there are some things you can learn and some ways that you might be able to help your family!
If you receive an allowance, practice spending your money wisely and putting some of it into savings! This will help you to learn good habits for the future so that if the world has money problems again when you are older, you will hopefully be less affected by it!
Ask your parents what kinds of things your family needs to do right now to save a little more money. You might be able to find really fun ways of chipping in for example, instead of your family buying a birthday present for Grandma this year, maybe you can all work together to make one! Or, plant some vegetables in your backyard that your family will be able to eat it will save a little money at the grocery store!
If you are worried, talk to your parents. Most likely they are planning well and keeping track of things so that your family will be okay until the economy gets better!
The financial crisis refers to problems with money that people in many countries have been dealing with recently. Finance (or financial) is a word that usually refers to big amounts of money. This is all part of the economy.
Even for grown-ups the economy can be quite confusing, but it is basically just a term used to talk about money and the way people buy, sell, and make things. The economy naturally goes through cycles depending on how much people buy, sell, and make! A recession refers to the economy when it's moving at a slower speed and fewer people are buying, selling, and producing new things. In simple terms, what is happening right now is that we're having a problem with money (financial crisis) because fewer people are buying, selling, and producing new things (we're in a recession).
Why this recession began
Every time there is a recession, there are lots of things that can cause it to begin. Economists (people who study the economy) have said that the recession we are in right now began in December 2007.
One thing that led to this recession has to do with the way people were borrowing money in recent years. A division of the American government called the Federal Reserve Board decided to make it easier for people to borrow money because they wanted to make sure people would invest in things.Investing refers to people or companies who give out money to fund a project in the hopes that the project will succeed and bring in a profit of even more money for the investors to earn! Unfortunately, allowing people to borrow money more easily came with some consequences no one had been able to predict.
The first of these consequences was that some people or companies who borrowed money were not actually able to pay it back. This was particularly the case with lots of people who had borrowed money to buy houses, which is why you might have also heard about the housing crisis” or mortgage problems.” (Mortgage refers to money borrowed and being paid back for the purchase of a house.) In some cases, banks and other financial companies were then allowed to buy the mortgages and loans that weren't being paid for, thinking they would end up making an even bigger profit from them in the end.
Unfortunately, this only made the problem even worse and the slow economy we're having now is the result of all the money that was loaned too easily, and the companies who bought the loans that no one could pay! Lots of companies and banks have recently had to close down because they were not earning the money they thought they would. Many people have lost their jobs because their companies could not afford to stay open or to continue paying so many employees. Because the economy is global, this affected people and businesses in other countries too.
Even though this all might sound like an awful lot of wrongdoing, this amount of buying, selling, investing, trading, and sharing is common in economics. There is no one person at fault for the bad loans and purchases; if anyone had known that it would happen this way, it certainly would have been stopped!
Now what?
No one knows exactly how long this recession will last, but luckily lots of smart, trained, and experienced people are working to find ways to get money moving again more quickly. While it is affecting many people right now and will continue to have effects for some time longer, it is indeed a normal part of a cycle that will circle around again eventually!
How can I help?
There is nothing that any one person (no matter how big or how small) can do to end the recession, but there are some things you can learn and some ways that you might be able to help your family!
If you receive an allowance, practice spending your money wisely and putting some of it into savings! This will help you to learn good habits for the future so that if the world has money problems again when you are older, you will hopefully be less affected by it!
Ask your parents what kinds of things your family needs to do right now to save a little more money. You might be able to find really fun ways of chipping in for example, instead of your family buying a birthday present for Grandma this year, maybe you can all work together to make one! Or, plant some vegetables in your backyard that your family will be able to eat it will save a little money at the grocery store!
If you are worried, talk to your parents. Most likely they are planning well and keeping track of things so that your family will be okay until the economy gets better!