25 Saving and Investment 25.1 Introduction You all know that the money earned by a family is called its INCOME. The money spent by the family to buy things is called its EXPENDITURE. It is difficult to suggest any one way of managing the family income that all families could follow because no two families with the same income will have the same requirements for expenditure. For example, Sunita s, and Seems s family income is the same. But Sunita has an elder brother and sister in college so that her family spends more on the education of the children. Seema is an only child studying in school, so her family is able to spend more on entertainment, and even save some money. Most families spend within their income and put aside some money for future use. This money that is put aside is called SAVINGS. Why do we need to save money? What can we do with our savings? These are some of the questions that will be answered in this lesson. 25.2 OBJECTIVES After reading this lesson you will be able to: define the term saving ; state the importance of saving; explain the importance of generating additional income;
118 :: Home Science list the different ways of increasing income; define the term investment ; state the importance of investment; suggest various ways of investment, and the basis for selection from among these ways. 25.3 What is Saving? In your house, you have seen that money is spent on clothes, food, house rent, school/ college fees, travel and many other things. In the same way, you must keep aside a part of your income for future use. This sum is known as 'SAVINGS'. Dayal is a shopkeeper. His monthly income is Rs. 4500/-. He lives with his wife, their two children and his old mother. His wife spends money on different everyday requirements and activities. But every month, she manages to keep aside a small amount of money. This money, which is kept aside, is her savings. We need to save for: Special needs of the family Emergencies Retirement and old age Making life comfortable. 25.4 Why Save Money? (1) SPECIAL NEEDS OF THE FAMILY The needs of the family change from time to time. The family has many responsibilities; for example, in the begging a family may spend more on buying furniture, utensils. In old age money may be spend on medical expenses. Besides all this money is also spent on gifts, entertainment, guests, trips, etc. When the children grow up, more money is spent for their higher education. Later on money is spent on marriages etc.
Saving and Investment :: 119 Education Marriage Guests Gifts (2) EMERGENCY We never know when something unfortunate may happen in our lives. There could be a sudden illness, like a heart attack, or someone may meet with an accident and suffer injury. In such cases money is needed for the hospital expenses, for the doctor s fees, for medicines, bandages, etc. The sudden death of the earning member of the family is also an emergency. Damage to property or crops due to a natural calamity like fire, flood, drought, etc., is also an emergency. To face these situations, one has to depend upon one s savings until some alternative arrangements can be made.
120 :: Home Science (3) RETIREMENT AND OLD AGE Although many workers to do get a regular pension after retirement, this amount is far less than what they were earning earlier. In order to continue living at the same standard as before, a person needs money which can be drawn only from the savings. (4) TO MAKE LIFE MORE COMFORTABLE As you know, there are a large number of electrical and other items of equipment which make life more comfortable. For example, a washing machine, a refrigerator, television, etc., are some of the luxury items we must save for. Saving for building your own house is also a good idea. INTEXT QUESTIONS 25.1 1. State whether the following statements are: Income, Expenditure or Saving. i) Money given to you by your mother. ii) You go to see a movie. iii) Money you get by selling eggs. iv) Your uncle gives you Rs. 100. v) You pay the electricity bill. vi) The salary of your father. vii) You put Rs. 1 every day in a box. viii) You buy gold jewellery and keep it. ix) Money you get by stitching clothes for others. x) You put money in a bank. 2. Fill in the table given below: Family structure What the Family should save for A. Father, Mother 1. Son 12 years 2. Daughter 16 years 3. Rented house B. Father 56 years 1. Mother diabetic patient 2. Sons 27 years, 20 years 3. Daughter married 4.
Saving and Investment :: 121 25.5 Generation of Additional Income Everything is becoming costlier these days. It is becoming more and more difficult to buy all that we need, with one person s salary. We cannot keep spending from our savings either. So, what is to be done in such a situation? We must think of new days by which we can add to our income, i.e., generate additional income. There are many ways in which income can be increased. INCOME < EXPENDITURE What is to be done Borrow Money from friends DESIRABLE Not Desirable Increase your Income by Kitchen gardening farming Poultry farming Tailoring clothes Bee keeping Preserving foods Making handicrafts i) Kitchen Gardening Do you have a small plot of land in your house? You can easily use it to grow vegetables. You will then have to buy less vegetables from outside. In case this plot of land is bigger or you have a farm, a lot of vegetables and crops can be grown, and the extra ones can be sold in the market. In both ways you are earning money. On the one hand, you save money by not having to buy vegetables from outsides; on the other hand, you earn by selling the vegetables in the market. ii) Poultry Farming Again, if you have a small space at the back of your house or even on the roof top, you can keep some hens. You will get eggs which can be used at home or sold in the market if the quantity is more than you need. This is also a good source of earning some extra money. iii) Tailoring Clothes If you are good at stitching clothes, here is another way of adding to your income. You can
122 :: Home Science stitch your own clothes and thus save the money to be given to a tailor. You can also stitch clothes for your neighbours and charge them for it and hence earn some money. iv) Bee keeping Bee keeping is also an activity which can bring in additional income. If you have the space, you can keep a few beehives. Honey, which is made by the bees, can be bottled and sold. Bees also produce beeswax which is used for making medicines and candles. v) Preservation of Foods You have learnt how to make pickles, jams, squashes, etc. After a little practice, you can start preserving foods in large quantities and selling them in the market. vi) Making Handicraft Articles Many of you must be good at making a number of things dolls, baskets, candles, enbroidered table-clothes, tie and dye, batik paintings, greeting cards, etc. These articles can be sold in the market to generate additional come. Now make a list of some other activities which can help you to generate additional income for your family. INTEXT QUESTIONS 25.2 1. The Mathur family lives in a small town. They have a small house surounded by a large garden. Mr Mathur is a postmaster, and he works from 9.00 a.m. to 5.00 p.m. for six days a week. Mrs. Mathur looks after the house. She is a good cook and can sew. They have two children. Rita, 23, is teaching in the local school. Rajiv, 14, has not yet finished his studies. (i) Suggest 3-4 ways in which the family can get additional income, keeping in mind where they are living and their skills. (ii) List 3-4 items for which they need to save. 25.6 Investment In addition to expenditure on different items every month, you keep aside some money as SAVINGS. But what do you do with this money? Can you say what happen if you just put this money in a bag and keep it there? It would probably get lost or stolen. The best thing to do would be to use your money in such a way that it keeps growing. This is known as Investment.
Saving and Investment :: 123 Can you now define investment? Investment is using our savings to make it grow. Let us consider an example. Suppose you have saved Rs. 10,000. If you keep this money at home, it will remain Rs. 10,000 even if you keep it for many years. But if you keep this money in a bank, it will earn interest and grow. The longer you keep it, the more it will grow. Or, if you buy a piece of land with this money, you can sell the land after some time for a higher price. In this case also, your savings will grow. There are a number of other ways in which you can invest your money. Let us find out about them. 25.7 Ways of Investment (i) By Putting in a Bank or Post Office Savings Account When you deposit money in a bank or in a post office they give a small amount of money as interest on your money. You can also put your money in the bank for a fixed number of years. In this case the whole amount, along with the interest, is returned after the fixed period is over. This investment is called a fixed deposit, and the interest on this is higher than in a savings account. You can also get a loan against this deposit. (ii) Buying National Savings Certificates National Savings Certificates are sold by the post offices. These are available in denominations of Rs. 100/-, Rs 500/-, and Rs. 1,000/-, You can buy these certificates depending upon how much money you want to save. A high rate of interest is given on these certificates and your money gets almost doubled in 6 years. You also get income-tax benefit on these certificates. You can buy as many certificates as you want i.e., there is no limit of investment. (iii) Buying Units Units are very much like National Savings Certificates. Units can be bought from the Unit Trust of India. You get a premium on each Unit. You get higher interest which is paid to you in the beginning in the form of post dated cheques. When you want your money, these units can be sold back to the Unit Trust. Post dated cheques:- these have future dates written on them. You can deposit this cheque after the date written and money will be transferred to your account. (iv) Investing in the Provident fund The Provident Fund Scheme has been started for government employees and workers of private and public offices. A small amount of money is deducted from your salary every month. The same amount of money is added by your employer. At the end of the your employment you get the whole sum.
124 :: Home Science The main advantage of investing in the Provident Fund is that you get tax rebate. Another advantage is that you can take loan from your provident fund whenever the need arises, say for a marriage in the family, or to build a house or for the higher education of the children, etc. Thus, it is a good way of investing your money. (v) Buying Shares These days, buying shares is a popular ways of investing money. Private companies and big factories sell their shares in the market in order to collect large sums of money. This money is used by them to expand their facilities or to put in more machines so that there is more production. Once the company starts making a profit, it is shared by the shareholders. These shares can be sold by you to others at a higher price than that paid by you. Since the shareholder becomes a part owner of the company, he shares the profit. But he may also have to share the losses of the company, if and when they occur. Hence, investing in shares is risky, unless you have read all about the company and satisfied yourself that it will not go into loss. (vi) Taking Out an Insurance Policy An insurance policy forces you to save a little money. The amount of money you save will depend upon the total amount of the policy and the number of years for which you have drawn the policy. At the end of this period, the money, along with the interest, is returned to you. The advantage of an insurance policy is that it covers you for any risk to your life like accident, sudden death, etc. It also covers you against theft, prolonged illness, damage to property or crop due to fire, flood or drought. You can also get tax rebate. (vii) Buying Real Estate Real estate refers to permanent, immovable property like land, a house, etc. When you use your savings to purchase a piece of land or a house, it is a life-time investment. Whenever you need money, you can sell your property at rates higher than what you paid for it, since the value of real estate generally keeps rising. 25.8 Criteria for Investment While choosing any investment scheme you should keep the following points in mind. 1) Safety and Reliability: you have to check whether the scheme ensures to pay you the money and is reliable. Most Government schemes are safe. 2) Easy liquidity:- you should be able to withdraw your money in case of need. 3) Accessibility:- should be near by. Post office schemes are within reach.
4) High Interest Rate:- you should choose those schemes, which are safe and give you higher interest rate. 5) Tax Rebate:- Schemes selected should also entitle you to an income tax relief. 25.9 What You Have Learnt In order to make it easier for you to remember, here are the main points of the lesson: Saving and Investment :: 125 Additional Income Lead to more Savings is generated by Kitchen gardening Poultry farming Bee keeping Tailoring Food preservation Making handicrafts may be Invested In Banks National Saving certificates Units Provident Fund Insurance Policies Shares Real Estate 25.10 Terminal Exercise 1. What are savings? 2. Why is it important to generate additional income? 3. List a few ways, other than those given in this lesson, to generate more money. 4. Of the various ways suggested in this lesson, which would you choose for investing your money? Give reasons for your answer.
126 :: Home Science 25.11 Answers to Intext Questions 25.1 (i) Income, (i), (iii), (iv), (ix) Expenditure- (ii), (v) Saving- (vii), (viii), (x) (2) A. i) Education of son and daughter ii) Marriage of son and daughter iii) To build a house. B. (i) Medical treatment of mother (iii) For retirement (iv) Marriage of sons (v) Education of the younger son. 25.2 (i) (a) Kitchen gardening/poultry farming/ beekeeping by Mr. Mathur in the evening. (b) Knitting and stitching clothes for people by Mrs. Mathur. (c) Making pickles and selling these. (ii) (a) Marriage of Rita (b) Education of Rajiv. (c) For retirement.