FL- U-1 introduction to financial literarcy

meaning and scope with scheme in india

1. Financial literacy refers to the ability to understand and apply different financial skills effectively, including personal financial management, budgeting, and saving. Financial literacy makes individuals become self-sufficient, so that financial stability can be accomplished.

2. Understanding Financial Literacy Financial literacy also requires the experience of financial principles and concepts, such as financial planning, compound interest,  debt  management, efficient  investment  strategies, and money-time value. Financial illiteracy can lead to poor financial choices which can have negative effects on an individual's financial well-being. The key steps to improve  financial literacy  include: - Learning the skills to create a budget - Ability to track expenses - Learning the strategies to pay off debt - Planning for retirement effectively

3. Benefits of Financial Literacy Financial literacy focuses on the ability to manage personal  finance  effectively, which requires experience of making appropriate  personal finance  choices, such as savings, insurance, real estate, college payments, budgeting, retirement and tax planning.

4. Benefits of Financial Literacy Being financially literate is a skill that brings forth an assortment of benefits that can improve the  standard of living  for individuals through an increase in financial stability. Listed below are the assortment of benefits of being financially literate: Ability to make better financial decisions Effective management of money and debt Greater equipped to reach financial goals Reduction of expenses through better regulation Less financial stress and anxiety Increase in ethical decision-making when selecting insurance, loans, investments, and using a credit card

5. Financial Goal A financial goal is a scientifically defined financial milestone that you plan to achieve or reach. Financial goals comprise earning, saving, investing and spending in proportions that match your short-term, medium-term or long-term plans. Every financial goal will have the following three details associated with them: - What is the purpose? How much money is needed? How much time? (usually in years)

6. a) Short-Term Goals Short-term goals are something you want to achieve in the foreseeable future over the next few months. These are required for your more immediate expenses. These expenses are generally smaller in scope and easier to project and predict.

7. b) Medium-Term Goals Medium Term lies between short term and long term. Short-term goals have a typical timeline of a year whereas long-term goals are planned for a decade or more. Medium-term goals are critical for evaluating your progress against your long-term goals. You can check whether you are headed in the right direction.

8. c) Long-Term Goals Long-term goals require more deliberation, and in most cases, money. Retirement, buying a house, and funding a child’s higher education are typical long-term goals.

9. Banking Keep your money safe!

10. Banking You started your business, now what do you do with your money? Where do you get that loan to expand your business? Where do you save for college or retirement? Banks of Course!

11. Services offered by Banks Direct Deposit: money from paycheck or govt. check is put directly into your account. ATM Cards: allow you to access accounts at bank machines Debit Cards: bank card used like a credit card; money is debited from your account to pay for a sale.

12. Bank Services cont. Stored Value Cards : cards for specific dollar amounts for specific products or stores (gift cards, phone cards, etc.) Overdraft Privileges : bank pays amount of a check even if there is not enough money in the account Online Banking : ability to check accounts, transfer money and pay bills over internet Safe Deposit Box : in bank vault to for important papers and valuable items

13. Banking Fees ATM fees Debit Card fees (few still charge) Check printing fees Stop payment fees Bounced check fees Checking fees

14. Types of Bank Accounts 1. Current account A current account is a deposit account for traders, business owners, and entrepreneurs, who need to make and receive payments more often than others. These accounts hold more liquid deposits with no limit on the number of transactions per day. Current accounts allow overdraft facility, that is withdrawing more than what is currently available in the account. You need to maintain a minimum balance to be able to operate current accounts

15. Savings account A savings bank account is a regular deposit account, where you earn a minimum rate of interest. the number of transactions you can make each month is capped. Banks offer a variety of Savings Accounts based on the type of depositor, features of the product, age or purpose of holding the account, and so on. There are regular savings accounts, savings accounts for

16. Salary account Among the different types of bank accounts, your salary account is the one you have opened as per the tie-up between your employer and the bank. This is the account, where salaries of every employee are credited to at the beginning of the pay cycle.

17. Fixed deposit account To park your funds and earn a decent rate of interest on it, there are different types of accounts like fixed deposits and recurring deposits. A fixed deposit (FD) account allows you to earn a fixed rate of interest for keeping a certain sum of money locked in for a given time, that is until the FD matures. FDs range between a maturity period of seven days to 10 years.

18. Recurring deposit account A recurring deposit (RD) has a fixed tenure. You need to invest a fixed sum of money in it regularly -- every month or once a quarter -- to earn interest. Unlike FDs, where you need to make a lump sum deposit, the sum you need to invest here is smaller and more frequent.

19. NRI accounts There are different types of bank accounts for Indians or Indian-origin people living overseas. These accounts are called overseas accounts. They include two types of savings accounts and fixed deposits -- NRO or non-resident ordinary and NRE or non-resident external accounts. Banks also offer foreign currency non-resident fixed deposit accounts

20. What is a Budget? A budget is a  spending plan , a tool to put you in control of your money. It shows how much money you have, where it needs to go to meet your needs and wants and when you will be able to reach your financial goals.

21. Saving Saving should be part of your budget. It is important to put aside some money each month for savings, if possible.

22. DIGITAL BANKING Digital Banking Meaning Digital Banking is the automation of traditional banking services. Digital banking enables a bank’s customers to access banking products and services via an electronic/online platform. Digital banking means to digitize all of the banking operations and substitute the bank’ physical presence with an everlasting online presence, eliminating a consumer’s need to visit a branch.

23. CREDIT AND DEBIT CARDS Debit and credit cards are both used to pay for goods or services without paying in cash or writing a check. The difference between the two is where the money to pay for the purchase comes from. When you use a debit card, the funds for the amount of your purchase are taken from your checking account almost instantly. When you use a credit card, the amount will be charged to your line of credit, meaning you will pay the bill at a later date, which also gives you more time to pay

24. Time value of money and inflation Simple and compound Interest Rate/ Rule of 72, Rule of 70, Rule of 50-30-20, Rule of 10- 5-3, 3X Emergency Rule Rule of 72 The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return. Alternatively, it can compute the annual rate of compounded return from an investment given how many years it will take to double the investment. If the interest per quarter is 4% (but interest is only compounded annually), then it will take (72 / 4) = 18 quarters or 4.5 years to double the principal. If the population of a nation increases at the rate of 1% per month, it will double in 72 months, or six years. The Rule of 72 dates back to 1494 when Luca Pacioli referenced the rule in his comprehensive mathematics book called Summa de Arithmetica

25. Rule of 70 The rule of 70 is a simple mathematical formula that can be used to approximate how long it takes for an investment to double in value. It’s similar to the rule of 72 and the rule of 69, but has slightly different applications. Let’s say an investor decides to compare rates of return on the investments in their retirement portfolio to get an idea of how long it may take their savings to double. To calculate the doubling time, the investor would simply divide 70 by the annual rate of return. Here’s an example : • At a 4% growth rate, it would take 17.5 years for a portfolio to double (70/4) • At a 7% growth rate, it would take 10 years to double (70/7) • At an 11% growth rate, it would take 6.4 years to double (70/11)

26. Rule of 50-30-20 The 50/30/20 rule of budgeting is a simple method that helps you manage your money more effectively. This basic thumb rule is to divide your post-tax income into three spending categories – 50% for needs 30% for wants 20% for savings. This is not a hard and fast rule but a simple guideline that helps you build a financially strong budget

27. Rule of 10-5-3 Another basic mantra on financial planning is the 10-5-3 rule. This rule simply tells you how different asset classes give you different kind of returns. As an investor, you should diversify your money into all of these asset classes to generate expected returns. The different asset classes and returns which can be expected from them as per this rule are – Long term Equity options– Returns expected can be in the range of 10% Debt options– Returns expected can be in the range of 5%# Savings account – Returns expected can be in the range of 3% Equity may give you higher return, but it is riskier as compared to other options, while debt investments will be comparatively safer, with moderate returns. Savings account means liquidity to meet any emergency needs.

28. The 3X Emergency Rule The term Emergency Fund refers to money kept away to use in times of financial distress. An emergency fund aims to improve financial security by creating a safety net that can meet uncalled expenses, such as an illness or major home repairs. It is advisable to own an emergency fund that's at least three times your current monthly income which is the bare minimum. You can move up to six months and keep building if you need to do so, but this fund will keep you financially stable in emergencies such as loss of employment, urgent travel, repairs, etc.

29. An emergency fund allows you to pay for: medical emergency vehicle accidents, damage or flooding sudden repairs/theft job loss flood or cyclone damage short notice travel to support a sick family member or friend

30. The Rule of 70 The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable's growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return. The Rule of 72 The rule of 72 is a simple method to determine the amount of time investment would take to double, given a fixed annual interest rate. To use the rule of 72, divide 72 by the annual rate of return.

31. The  Rule of 70  and  Rule of 72  are similar in that they are both methods of calculating how long it will take for an investment to double in value. The Rule of 70 is calculated by dividing 70 by the compound annual growth rate ( CAGR ), while the Rule of 72 is calculated by dividing 72 by the CAGR. The main difference between the two rules is that the Rule of 70 is more accurate overall, but is more difficult to use from a mental math perspective. For example, 70 is not divisible by 3, 4, 6, 8, 9, or 12, while 72 is. For that reason, many prefer the Rule of 72 over the Rule of 70 as a more effective shortcut

32. which rule should you use? You can use either rule and get a close approximation. However, if you do know the interest rate, it’s best to use the rule that can give you an easier estimation. For instance, if your return is 7 percent, 10 percent, or 14 percent, the Rule of 70 would be easier to use because each number is cleanly divisible by 70. You would estimate that the time it would take for an investment to double in value would be 10 years, 7 years, or 5 years, respectively.

33. Rule of 70 vs. Rule of 72 – Conclusion The Rule of 70 and the Rule of 72 are both financial rules of thumb that can be used to estimate how long it will take for an investment to double in value. The difference between the two rules is that the Rule of 70 uses a slightly more accurate estimate, while the Rule of 72 is a little easier to calculate. In general, either rule can be used for a quick estimation, but if you need a more precise answer, it is best to use the Rule of 70.