What is Velocity of money?

Velocity of money is how fast money moves from one person to another.

Imagine you have a piggy bank full of coins, that’s like money in your hands. Now think about when you go to the store and buy candy with those coins. Then, your friend buys candy from you using their own coins. That's money moving, it goes from your piggy bank to the store, then to your friend.

Now imagine if you and your friends pass around that same coin all day long, buying snacks, trading toys, or even just playing games with it. The more times that coin changes hands, the faster the money is moving, that’s a high velocity of money!

If money moves slowly, like when you save your coins in the piggy bank for weeks before spending them, then the velocity of money is low.

So, just like how fast you run around the playground tells people how active you are, the velocity of money tells us how busy and lively an economy is.