Financial Literacy

( Non Evaluative) 

 1. Barter and Money 

Barter System: 

We need different kinds of goods in our daily life like food, clothes etc. We buy them with money. Do you know when there was no money, how goods were bought? It was like buying goods for goods ( exchange of one commodity for another) this is called Barter system. 

These are limitations in trade system. 

Two important limitations are 

1. Problem of double coexistence of want. 
2. Standard of measure. 

The below two limitations are explained with the help of illustration below A and B live in our position. They want to borrow trade system for buying and selling of goods and services. A is a planter and has fat rice and is in need of cloth; he talks to B regarding his need. B responds that he has also cornucopia of rice and is in need of wheat, it's important to mention that cloth and wheat is neither available with A nor with B. Then exchange isn't possible because problem of double coexistence of want arises.

 The double coexistence means fat good of A is needed by B and fat good of B is needed by A. This isn't possible in all cases. Occasionally, A is interested in fat of B while as B isn't interested in surplus of A.

 The problem of standard of measure arises in trade system as if A wants to change bull with lamb of B. Then problem of size and value arises which doesn't grease exchange.

 Money

Money is medium of exchange, measures and store of value. It's in the form of a coin which is termed as mind money and currency note called paper money.

Evolution of Money

 The development of money has passed through various stages with progress of economic civilization of mankind. The stages of evolution of money are: Animal money, Commodity Money, Metallic money and Paper money. The modern forms of money include Plastic money (includes debit and credit cards) and Digital money (money transaction based on computer and mobiles). 

2. Bank and Investment

 Dear children by now you are aware of concept of money. Now we will move towards the storage and use of money. We often save our money in different forms. You know, saving is a good habit and it helps to meet future needs, otherwise very difficult to meet. Saving means to preserve money. Whatever is earned it is spent for our daily needs but it is not wise to spend whole of the earned money. You know small drops of water make an ocean. The same way if we save a small part of our money and one day it will get multiplied and benefit us in the long run. See children you get your pocket money say Rs. 10 out of this Rs. 10 if you save only Rs. 1 per day that means you will save Rs. 30 per month and so on. If we will not save today we will be having no money for tomorrow. The same way your parents who earn on monthly basis spend upon you and the surplus money they save for supporting your education, construction of house etc. Saving is not the function of only elders, but also as children you also try to save. You might be having your small bank known as  Buggi  at your home which you use for storing your surplus money. 

Bank

 Have you ever visited a bank? Bank is an institution which deals in money. It is a place where we deposit our money for safe custody and future requirements. 

Functions of a Bank:

 Let’s now discuss the various functions that a bank performs:

• Accepting deposits: This is the first and foremost function of a bank. Bank accepts deposits in the form of money from the public. Bank pays interest on these deposits that becomes expenses for the bank. 
• Lending of loans: Bank lends money in the form of loans to the people who are in need of and charges interest that becomes income for the bank. 
• Other functions: Besides, these two core functions banks perform many other vital functions like transfer of money from one person to another and from one place to another. Bank helps us in protecting our precious valuables like jewellery (Locker facility). It helps us in purchases without the physical use of money through debit and credit cards. 

Investment 

 Investment is to utilize a portion of saving in some productive activity like business ventures, purchase of assets etc. with an objective to augment returns. A Businessman invests in business ventures, government invests in industries and projects like wise we invest in Banks. We may also invest money in shares of a company and other financial instruments. 

Interest

 Interest is reward for the use of money, just as rent is payment for use of land, building, office accommodation etc. Bank pays interest because it utilizes our money for lending to people and business firms. Similarly we pay interest on the money borrowed from the bank.

 Dividend 

Dividend is another form of earnings on investment. It is due share of profit that is annually given to the shareholders of company. Both interest and dividend are the returns on investment. 

Budget  

Have you ever heard of budget? May be not. Let’s discuss it. Budget is a statement of expected expenditure and revenue. Budgets are prepared at family to Government level. Annual budget is normal feature of every government to decide about expenses and income. 

3. Insurance and Tax 

Insurance 

Dear students what is insurance? Everybody is exposed to risks and uncertainties There are possibilities of occurrence of loss on happening of an event. These risks can be either natural or manmade resulting in financial losses. To compensate these losses we have a mechanism called insurance. Thus insurance is a system of sharing losses of few by many which reduces the cost of loss caused by variety of risks. Insurance cannot prevent unwanted events or cause of loss from happening. However, it protects the policy holder by compensating them the promised amount of loss.

 Types of Insurance: 

The various types of insurance are discussed as below: 

• Life insurance:  Life Insurance has twin objectives risk: coverage and investment. Risk coverage means that sum assured is paid upon the death of the policy holder. This amount is paid to the nominees of the policy holder. The investment purpose is served by the fact that sum assured is paid to the policy holder at the maturity of the period. 
  
• General Insurance:  General insurance covers the risks other than life. The different forms of general insurance are home, vehicle, travel, crop, livestock, marine etc. A business man also adopts general insurance for protection of his business property e.g. shops or premises, warehouse, goods in transit etc. 
• Health Insurance:  Health Insurance is a facility to cover the financial losses due to ill health. The costs incurred on account of surgery and medical treatment are taken care of under this insurance. Health is one of the components of general insurance. 

Taxation 

Dear students do you know how a government is run? It is run by public money raised by Taxes. Thus it is the public money which acts as revenue for the government and it is termed as tax. To be clear, tax is a compulsory payment against which one may or may not get any measurable benefit. Have you ever thought on construction of Hospitals, schools, bridges, roads (social infrastructure). Who constructs them? The government constructs this structure out of the money received from taxes. 

There are two types of taxes

 Direct and Indirect Tax paid directly to the government by a person or organization is termed as Direct Tax. Income tax and wealth tax are example of direct taxes. In case of direct taxes the incidence and impact is one same person. Indirect taxes are collected from person or organization other than the person or organization that would normally be responsible for tax payments. In case of indirect tax incidence is on one person and the impact is on another person. Sales tax, excise tax are examples of indirect taxes. Sales tax and other taxes together are now known as GST (Goods and Services Tax). 

Goods and Services tax (GST)  is indirect tax introduced in India on 1 July 2017 and is applicable throughout India which replaced multiple cascading taxes levied by the Centre and State. The GST is governed by GST council headed by Finance Minister of India. Under GST goods and Services are taxed at 0%, 5%, 12%, 18% and 28%. 

PAN

We are now aware of tax system. This is important to know how this tax is collected and accounted for by the government. Government issues a number for every tax payers for identification purpose. The tax payments of an individual are tracked through PAN expanded as Permanent Account Number. It is ten digit alpha-numeric number issued by Income Tax department. PAN enables the Income tax department to link all financial transactions of the persons.