Introduction to Finance

Individual net worth
is the sum of an individual’s money, 
real assets, and fi nancial assets, or claims against others less the individual’s debt obligations. 
Recall that real assets include the automobile that you own, your house (if you have one) and 
its contents, clothes, and even jewelry or precious stones. You may also own shares of stock 
in a mutual fund. While this is a fi nancial asset, it is still part of your net worth. However, 
you may have borrowed from a bank to purchase your automobile, and you probably have a 
mortgage loan on the house you purchased. These are fi nancial claims held by others against 
some of your real property. You must subtract debt obligations, or fi nancial claims against 
you or your real property, in order to determine your individual net worth. There are probably 
more than 8 million millionaires in the world with about one-third of them being in the United 
States. If you wish to join this group someday, you will have to accumulate a net worth in 
excess of $1 million. Good luck!
money 
anything that is generally 
accepted as payment for goods, 
services, and debts
medium of exchange 
the basic 
function of money
barter 
exchange of goods or 
services without using money
store of value 
money held for 
some period of time before it is 
spent
purchasing power 
amount of 
goods and services that can be 
purchased with a unit of money
infl ation 
an increase in the prices 
of goods and services that is not 
off set by increases in their quality
liquidity 
how easily and with 
little loss of value an asset can be 
exchanged for money or other assets
standard of value 
a function of 
money that occurs when prices 
and debts are stated in terms of the 
monetary unit