What is Balance of payments?

The Balance of payments is like a piggy bank that keeps track of all the money coming in and going out between countries.

Imagine you're at a lemonade stand, and your best friend is across town running their own stand. Every time someone buys lemonade from you, it's like getting a coin in your piggy bank. Every time someone buys lemonade from your friend, that’s like giving up a coin from your piggy bank. The Balance of payments does something similar but for whole countries, it shows how much money is coming in (like when people buy things from your country) and going out (like when people buy things from other countries).

• When a country sells things to another country, like toys or food, that’s money coming in.
• When a country buys things from another country, that’s money going out.

If more money is coming in than going out, it’s like your piggy bank gets fuller. If more is going out, the piggy bank might get lighter, but that's okay! It just means the country is spending on other countries' stuff.

Sometimes, people also send money to family or invest in another country, which adds more coins (or takes some away) from the piggy bank. That’s part of the Balance of payments too!