An easy guide to

Financial Literacy
A CII and KPMG in India initiative
 Foreword

Financial literacy is an essential skill for the young minds as they

embark on their journey towards becoming responsible and
independent individuals. It is an essential foundation for young
learners, empowering them to make informed decisions about money,
savings and investments from an early age. Understanding how to
manage finances is a critical life skill that will help shape responsible,
aspiring individuals ready to navigate the complexities of the modern
economy.

KPMG in India and the Confederation of Indian Industry (CII) have

collaborated to create an easy guide aimed at providing the developing
minds with practical financial knowledge. The handbook seeks to
teach readers about the role of money as a medium of exchange and
the importance of earning, saving and spending wisely. It introduces
concepts such as budgeting, investing and responsible borrowing to
young learners, helping them cultivate good financial habits that will
prove beneficial in their future.

We believe that introducing financial education at a young age sets the

foundation for future success. Through this handbook, the readers will
not only learn the fundamentals of managing money but will also
understand how financial decisions impact their long-term goals and
security. These lessons will encourage them to cultivate disciplined
saving and smart spending, paving the way for financial independence.

This handbook is designed to help readers make smarter, more

informed financial choices that will serve them well.

Chandrajit Banerjee
Director General
Confederation of Indian Industry (CII)
Table of
contents
Chapter 1
Introduction to money as a medium of exchange 01
Chapter 2
Importance of earning money 08
Chapter 3
Importance of saving 15
Chapter 4
Basics of investing 21
Chapter 5
Spending wisely 26
Chapter 6
Be smart about debt 33
Chapter 7
Understanding banks 40
Chapter 8
Insurance and financial security (for individuals) 50
Chapter 9
Safeguarding your digital and card transactions 57
Chapter 10
Planning for the future 65
1. Introduction to money as a medium of exchange
Learning objective: By the end of this chapter, readers will recognise the significance of
money as a tool for transactions. This will prepare them to learn complex financial concepts
and practices, enabling them to navigate the modern world with confidence.

The following topics shall be discussed in this chapter:

Financial literacy • Why is it important to be financially literate?

Fundamentals of money • Significance and functions of money

Evolution of money • Key milestones in the history of money

Types of money • Forms of money • Global currencies

Financial literacy
Financial literacy is the awareness needed to handle money wisely. It helps in making smart
choices with respect to spending, saving, investing, borrowing and lending money responsibly.

Financial literacy is important because it helps people to:

Invest wisely and grow their wealth
Protect against financial frauds and scams
Budget effectively for both short-term and long-term goals
Support community development and promote financial education

Financial literacy allows individuals to manage their finances wisely, achieve their financial goals
and earn money in an honest and ethical way.

Fundamentals of money
Money is widely recognised as the medium for transacting goods and services. In India, it takes
the form of a currency known as the Indian National Rupee, also denoted as INR or ₹.1
Money makes it easy to buy and sell things. It shows us how much things are worth, making
trading fair for everyone. It can be used as a loan - you can borrow money now and pay it back
later. You can also save money for the future, so you have it when you need it.2

01
Evolution of money3
The concept of money has evolved over thousands of years, starting from the simple exchange
of goods to the complex digital transactions we use today. The barter system started around
8,000 years ago, when no form of money existed.4 It allowed people to trade surplus goods
directly, such as a farmer exchanging extra rice for wheat with a neighbour, without using money.
Over time, societies adopted shells, grains and cattle as forms of currency due to their
widespread acceptance and value.5 Around 2,600 years ago, metal coins made from gold, silver
and copper were used to standardise trade.6

Barter system Objects as money Metal coins Paper money Modern money

Paper currency, known as "flying money" originated in 7th century in China and became popular
by the 11th century allowing easier long-distance trade compared to coins.7 Today, money
includes paper notes, coins and digital forms including credit cards, debit cards and online
transactions, enabling fast and convenient transfers of funds.

Definition: Surplus is the extra amount left over after a need or requirement has been met.

Forms of money
Notes and coins: These comprise the physical form of money called currency. Every country
has its unique currency design and denominations. India has paper notes in denominations 10,
20, 50, 100, 200 and 500 rupees and coins in denominations 1, 2, 5, 10 and 20 rupees.

Advantages: Disadvantages:
Widely accepted and no need for a Can be lost or stolen easily
phone or internet Carrying large amounts is
Helps you control expenditure as you inconvenient
know how much you have Currency notes can wear out or get
Immediate settlement and no damaged over time
transaction fees

02
Cards: Debit and credit cards are a convenient and secure means of transaction without cash.
Debit cards are linked to your bank account and allow immediate withdrawals, while credit
cards allow you to borrow money up to a certain limit from the credit card provider.

Advantages: Disadvantages:
Easy to carry and use without Needs card machines or internet to
needing cash work
Lost or stolen cards can be blocked Credit cards may lead to
to prevent misuse unnecessary spending
Credit cards allow emergency Banks may charge a fee per
purchases when you have insufficient transaction or annually
money

Digital money: It refers to all forms of monetary transactions done electronically through online
systems. This includes mobile wallets and digital payment applications that use Unified
Payments Interface (UPI). Digital payments are the key feature of digital banking, allowing
customers to make instant payments easily.

Advantages: Disadvantages:
Quick and easy way to send or Needs internet and a phone or a
receive money online computer to work
No need to carry cash or cards Can be hacked or misused if not
Keeps a record of your digital well-protected
transactions Not everyone or every place accepts
digital money

Do you know? A bank transaction is a digital record of money moving into or out of your
bank account, without any physical exchange of cash taking place.

Cryptocurrency: It is a form of digital money that only exists online and is not controlled by any
bank or the government. It uses blockchain technology that keep the transactions secure,
limiting the chances of frauds. Cryptocurrencies are stored in applications or digital wallets and
can be used for purchases or traded. However, most people invest in them. While they can be
exciting, investing in cryptocurrencies carries certain risks, so it is important to do thorough
8
research before investing.

Advantages: Disadvantages:
Fast and easy online transactions Its value changes continuously
No need for cash or cards Not widely accepted
Secure, transparent transaction Transactions may take time to verify
records

03
 Do you know? The Reserve Bank of India (RBI) has introduced the Digital Rupee, a type of
digital money called Central Bank Digital Currency (CBDC). In contrast to cryptocurrencies,
it is fully regulated by the RBI and can be used for online transactions just as physical
money, but without needing cash. More importantly, the Digital Rupee is designed to be
faster, safer, more efficient and is the next step in the evolution of money.9

Global currencies and their conversion

Every country has its own currency that is used for trading within its borders. Each currency has
a unique name, symbol and value. For instance, the United States uses the US Dollar (USD or
$), most European countries accept the Euro (€) and Japan trades with the Yen (¥).

Currency conversion is an act of trading one type of currency for another, which can be required
for international trade, travel or investment.

The global movement of currencies is influenced by

several factors such as rising prices and geopolitical
events. For instance, the exchange rate between the
USD and the INR has seen major changes over the
years. In the early 2000s, USD1 was equivalent to
approximately INR45, whereas, in recent years, this
rate has increased to over INR83, reflecting the
economic changes in both countries.10

This is how the exchange rate of USD to INR has been changing over the years.

44 44 46 67 74 76 82 83 83

80

70
INR

60

50

40
2000 2005 2010 2015 2020 2021 2022 2023 2024
Years

04
 The United States China Japan
of America

Global
currencies
United States Dollar Chinese Yuan/Renminbi Japanese Yen
(USD/$) (CNY/¥) (JPY/¥)

The United Kingdom Canada Switzerland India

British Pound Sterling Canadian Dollar Swiss Franc Indian National Rupee
(GBP/£) (CAD/C$) (CHF) (INR/₹)

Let us take an example to understand this concept better:

You are visiting the US with your family and you see your favourite superhero game that
costs USD5. If USD1 equals INR83, how much would the game cost in INR?

Given that USD1 equals INR83, multiplying USD5 by the exchange rate gives us the cost
in rupees:

5 x 83 = 415

So, the superhero game would cost approximately INR415.

Story time!

Raj, Meena and Kabir are best friends. One day, they come up with an exciting plan to go
camping in the nearby forest during their school holiday. They eagerly listed all the things they
needed for their trip — tents, chatai (mattress), food and even a torchlight to explore the forest
at night. But soon their excitement dimmed as they realised, they needed money to buy those
things. Raj suggested, "Why don't we gather some wild berries and fruits from the forest and
sell them in the village market? People always buy them and we can use the money to buy the
things that we would need for our adventure!”

05
Kabir added, "We can also try making some handicrafts or small tools
that we can sell in the village. I have seen my uncle do it and make
some extra money that way." Excited by their ideas, the friends set off
to put their plan into action. They spent their days gathering berries
and crafting small items to sell. Slowly but steadily, they started
earning money for their camping trip, always making sure they earned
it in an ethical and fair manner.

Finally, the day of their adventure arrived. With

their pockets filled with coins they had earned,
they headed to the village market to buy the
camping necessities, feeling proud of
themselves for earning the money through their
hard work. As they hiked into the forest, they
realised that money is not just pieces of paper
or metal coins; it is the result of their efforts
and the key to turning their dreams into reality.
As they set up a camp under the stars, they
knew that their adventure could not have been
possible without the money they earned.

Now, think about these things and discuss them in groups:

• What things will you need to go camping at the nearest camping site and how much do they
cost?
• How can you earn enough money to buy all the camping equipment?
• How would you feel about camping with your earned money?

Summary
• Financial literacy means understanding how to manage money wisely.
• Money simplifies the buying and selling of goods and services and allows us to compare
the value of different things.
• Different countries use unique currencies and currency conversion is essential for
international trade, travel and investment, influenced by economic conditions.

Exercises
Fill in the blanks
i. __________________ enables individuals to make informed decisions about financial products and
risks.
ii. Digital money refers to transactions made through ______ systems.
iii. The currency used in Switzerland is called the ______.
iv. The term "flying money" referred to early forms of ______ currency.
v. The currency of China is ____________.

06
 Choose the correct answer

i. What is financial literacy important for? ii. What is currency conversion?

a. Playing video games a. Trading one type of currency for another
b. Making smart choices with money b. Using the same currency everywhere in
c. Buying only expensive things the world
d. Avoiding all types of savings c. Only using dollars in every country
d. A type of online shopping

iii. Which of the following is true about iv. If USD1 equals INR83, how much
debit cards? would a USD25 item cost in INR?
a. Debit cards are used for online shopping only a. INR2,075
b. Debit cards help you save money in the bank b. INR2,000
c. Debit cards are linked to your bank account c. INR3,087
d. Debit cards can only be used to withdraw d. INR3,000
money from ATMs

Crossword puzzle
1

2
Across:
3
2. Exchange of goods and services directly without the use
of money
4. Conditions causing fluctuations in the value of currencies
4
5. Currency used in Japan
6. Paper currency was originated in this country
5

6
Down:
1. Primary function of money
3. Money in electronic format

References
1
[Link]
2
[Link]
3
[Link]
%20of%20metal,issued%20the%20first%20regulated%20coins.
4
[Link]
system#:~:text=Mesopotamia%20tribes%20were%20likely%20the,weapons%2C%20and%20spices
%20they%20needed.
5
[Link]
6
[Link]
7
[Link]
8
[Link]
9
[Link]
[Link]
payment-companies-to-facilitate-transactions/articleshow/[Link]?from=mdr
10
[Link]

07
2. Importance of earning money
Learning objective: In this chapter, readers will be able to appreciate the significance of
earning money; explore diverse ways to do so with an entrepreneurial mindset; understand
the importance of education and skill development for generating income; and balance
school, chores and leisure effectively.

The following topics shall be discussed in this chapter:

• Introduction to earning money

Earning money • Means of earning money
• Introduction to entrepreneurship

• Importance of education in skill development

Skills and education • Cultivating skills inside and outside the school
• How can skills translate to income opportunities?

Working habits • Inculcating financial discipline

Earning money
Earning money refers to receiving financial compensation or income for providing goods or
services or as a return on an investment. It is a fundamental activity for sustaining livelihood,
achieving personal financial goals and contributing to the economy.

Earning money is essential for acquiring necessities, such as food, shelter and healthcare, as
well as for accessing education and enjoying comforts and leisure activities.

Opportunities for earning money

There are several opportunities for earning money. Some of these include:

Employment
Employment involves working for an organisation in
exchange for a fixed salary or daily wages, providing regular
income and often a structured career path. Daily wage
employment includes jobs where workers are paid based
on the days or hours they work, with payment made daily or
weekly and the work is not always guaranteed.

08
 Entrepreneurship
Starting and managing your own business or venture is called
entrepreneurship. This path involves taking financial risks to make
profits. Entrepreneurs have the autonomy to make decisions
about their business direction, products or services and growth
strategies. Examples include vegetable vendors, food stall
owners, florists, bakery owners and many more.

Freelancing
Freelancers are self-employed individuals who offer their services
on a contractual basis, including writers, graphic designers,
programmers and more. Certain freelancers, such as chartered
accountants, doctors, lawyers and architects are business
professionals, who leverage their specialised skills and expertise
to serve various clients.

Investing
Spending money on financial assets or ventures with the
expectation of generating an income or profit in return over time is
termed investment. Some of the investment options are shares,
bonds, mutual funds, post office schemes, recurring deposits,
fixed deposits and more. We will discuss more about investing in
the coming chapters.

Full-time employment offers a fixed schedule and salary with employer guidance, while
entrepreneurship requires self-directed work to build a business and freelancing provides
project-based work with variable income and client responsibility.

Understanding entrepreneurship
Entrepreneurship is about finding opportunities, coming up with ideas and taking risks to
convert ideas into businesses. They are known for challenging norms, thinking outside the box
and having the opportunity to innovate.

The Government of India (GoI) has implemented several measures to promote entrepreneurship
within the country. One such initiative is the 'Startup India' program launched in 2016 to
strengthen the startups in India. This initiative offers a variety of incentives and benefits, aimed
at improving their growth and success.

Let us understand more about entrepreneurship through Priya’s story.

09
Story time!
In a quaint village, surrounded by lush fields and swaying coconut trees, lived a girl named Priya.
She had a special talent – weaving beautiful baskets and mats from dried palm leaves and
colourful threads. One day, Priya noticed something missing in her village – there were no
eco-friendly options to replace plastic bags for carrying groceries. The village faced problems
due to plastic waste: cows often consumed discarded plastic bags, which would harm their
health and plastic bags also choked the drainage systems frequently, leading to flooding during
the rainy season.

Determined to make a difference, Priya

decided to start her own business of making
and selling eco-friendly bags. Using her
weaving skills, Priya began creating sturdy
and stylish bags from palm leaves. She
incorporated different designs and sizes,
making bags that were both practical and
fashionable. She also used vibrant colours
that reflected the beauty of her village.

Priya set up a small stall at the village market

and started selling her bags. She patiently
explained to shoppers the benefits of her
eco-friendly bags – they were biodegradable
and sustainable and helped reduce plastic
waste. She also highlighted the
cost-effectiveness of her bags; although the
initial price was slightly higher than plastic
bags, the durability of the palm leaf bags
meant they lasted much longer, providing
better value for money.

Slowly but steadily, Priya's bags started gaining popularity. People appreciated her efforts to
protect the environment and supported local craftsmanship. Soon, Priya's bags became a
must-have accessory for everyone in the village. Encouraged by her success, Priya expanded
her business online. She established a strong presence on social media, showcasing her
eco-friendly bags. Priya also promoted her products at the village melas (fairs) which attracted
customers from nearby towns and cities. These efforts boosted her visibility and reputation
beyond her village, contributing to the growth of her business.

As Priya looked at the growing demand for her bags, she

felt proud and satisfied. She had turned her passion for
weaving into a thriving business that provided income
and contributed to making the world a better place. As
her eco-friendly bags found their way into more hands,
Priya knew she was making a difference, one palm leaf
at a time.

10
Key learnings on entrepreneurship from the story:

Identifying Using skills Environmental

Problem-solving
a need and talents awareness

Priya noticed a lack She made Instead of just Her choice to make
of eco-friendly eco-friendly bags, recognising the eco-friendly bags
options in her proving how our problem, Priya took shows that small
village, focusing on skills can benefit us action, showing the actions can help the
spotting the gaps and the community. value of initiative environment.
around us. and problem-solving.

Persistence Innovation Cost-effectiveness Community

and resilience and creativity and pricing impact

Despite doubts, Her creative designs The eco-friendly Priya's business

Priya's persistence made her bags bags offered quality, generated income
teaches the appealing, showing durability and and helped the
importance of how innovation and affordability, environment,
determination in creativity drives providing better showing us that
overcoming entrepreneurship. value than plastic entrepreneurship
challenges. bags. benefits society.

Activity
Create your own business plan!
Now that you know who an entrepreneur is from Priya’s story, it is time to create your own business
plan. Form teams with your classmates and answer these questions:

Idea: Think of a product that helps make the

world better.

Innovation: New idea or improvement of an

existing product.

Target market: Identify your customers and

how often they will buy.

Pricing: Set a price for your product and how

many units can you sell each month?

Marketing: Plan how to promote your business.

Name and logo: Come up with a catchy and

meaningful name for your product and design
a logo.

11
Skills and education
Education equips people with knowledge, expertise and
critical thinking abilities. This foundation serves as a
platform upon which various skills can be built and refined.
For instance, academic education teaches foundational
skills, such as language and mathematics, while vocational
or technical education trains people on skills relevant to
various professions, such as carpentry, plumbing, stitching,
mobile repairing and more.

Schools not only impart academic knowledge but also encourage the development of soft skills,
such as communication, teamwork and leadership, through extracurricular activities, projects
and interactions with peers and teachers. These skills are crucial for professional development
and personality improvement from a young age.

The GoI offers various courses to train people on skills that help them earn. Some of them are:

Online courses
• Digital Infrastructure for Knowledge Sharing (DIKSHA)1 is the initiative to promote online
education by providing free e-books, training courses, virtual labs and TV-based lessons in 36
languages.
• The Skill India Mission2 offers online courses on computers, graphics design and much more.
Soft skills development
• The Skill India Mission offers free courses on spoken English and communication skills,
which are crucial for effective interaction, teamwork, critical thinking and adaptability but are
typically not taught in traditional classrooms.

Vocational courses
• The GoI's Samagra Shiksha3 programme, started in 2018, has expanded regular school
curricula to include vocational courses on agriculture, banking, construction, entrepreneur-
ship, healthcare, IT, plumbing, retail, telecom and more.

Developing good work habits

Developing good work habits is crucial for productivity and success in any endeavour, especially
financial growth and sustainability. Here are some key habits to cultivate:

Ensure timeliness: Be consistent: Set milestones: Continue learning:

Prioritise tasks, set Establish a routine Set clear, achievable Keep improving
deadlines, adhere to that suits you and goals and break them yourself by acquiring
defined timelines stick to it to build into smaller steps for new skills and staying
momentum progress tracking updated in your field

12
 Stay well: Become adaptable: Keep reflecting: Establish
Prioritise good sleep, Stay flexible and Regularly assess your communications:
exercise and healthy adjust your habits as habits and outcomes Communicate clearly
habits to have needed based on to identify areas for with peers or clients
sustained energy feedback and changes improvement to foster collaboration

In order to develop good work habits, establish a routine by planning your week with a to-do list
and prioritising tasks. Choose a quiet study space, break large projects into smaller tasks and
use a calendar app to schedule study sessions. Reward yourself for milestones, seek help from
teachers or classmates and ensure you get 7-8 hours of sleep each night to maintain focus.

By making these habits an inherent part of your life, you can enhance productivity, work
satisfaction and overall effectiveness in your studies.

Summary
• Earning money means getting paid for providing goods or services. It is crucial for
meeting basic needs and reaching financial goals.
• There are several means of earning money, each with its unique advantages. Some of
these include employment, entrepreneurship, freelancing and investing.
• Entrepreneurship involves grasping opportunities, innovating and taking risks to start
and grow businesses, introducing new products or services to the market.
• Education provides foundational knowledge and skills, including both academic and
vocational training.

Exercises
Fill in the blanks
i. Earning money is essential for acquiring necessities, such as ____, shelter and healthcare.
ii. ________________ refers to starting and managing your own business or venture.
iii. Education serves as a platform upon which various ______ can be built and refined.
iv. Employment provides a regular ______ and often a structured career path within an organisation.
v. Consistent work habits involve establishing a ______ that suits you and sticking to it.
vi. The ______ Infrastructure for Knowledge Sharing (DIKSHA) initiative promotes online education.

True or false
i. Entrepreneurship involves working for a company and receiving a fixed salary.
ii. Education equips individuals with only academic knowledge.
iii. Earning money is only important for accessing leisure activities.

13
 True or false
i. Entrepreneurship involves working for a company and receiving a fixed salary.
ii. Education equips individuals with only academic knowledge.
iii. Earning money is only important for accessing leisure activities.
iv. Investment involves spending money on assets with the expectation of generating income over
time.
v. Freelancers are self-employed individuals offering services on a contractual basis.
vi. Ensuring timeliness is not crucial for developing good work habits.

References
1
[Link]
2
[Link]
3
[Link]

14
3. Importance of saving
Learning objective: By the end of this chapter, readers will have a clear understanding of
the importance of saving money. They will be able to distinguish between needs and wants,
explain the significance of budgeting, discuss various methods of saving and understand the
importance of discipline in saving.

The following topics shall be discussed in this chapter:

• Needs vs. wants • Planning expenses and budgeting

Saving money • Importance of saving • Setting goals for saving
• Types of savings • Methods for saving

Developing • Cutting down unnecessary expenses

saving habits • Imbibing smart financial habits

Saving money
Saving money means reserving a portion of your income for future use instead of spending it on
immediate expenses.

Savings = Income - Expenses

Understanding the distinction between 'needs' and 'wants' can help us use money responsibly
and avoid unnecessary expenditures1.
Needs: These are basic necessities important for our well-being and health. Examples include
food, shelter, water, clothing and healthcare.
Wants: Once essential needs are satisfied, we seek things that improve the quality of our lives
but are not necessary. Entertainment, travel and other non-essential items are examples of
these desires. It is wise to plan for these after ensuring basic needs are covered.

Importance of saving money

Helps achieve financial goals: Regular saving helps achieve your financial goals, such as
purchasing a new bicycle or saving for college. You achieve financial independence by saving
money. Saving teaches effective planning skills and helps prioritise personal goals and
aspirations.
Ensures financial security and peace of mind: Imagine having a dedicated reserve - your
emergency fund - to handle unforeseen circumstances, such as medical emergencies or
sudden repairs. Consistent saving for emergencies ensures peace of mind. It gives you the
ability and confidence to manage unexpected challenges without any financial stress.

15
Types of savings
There are two types of savings - short-term savings and long-term savings. Let us understand
them with some examples:
Short-term savings: These are typically used for immediate goals or expenses within the
next year, such as a school trip, buying a new novel or building an emergency fund.
Long-term savings: These are usually for bigger goals that are years away, such as saving
for college fees or even for starting your own business someday.

Planning expenses and budgeting

It is very important to plan your expenses carefully to avoid overspending on wants and
underspending on needs. Budgeting helps you achieve this. Budgeting means planning how
you will use your money for expenses and savings over a certain period, such as a week, a
month or a year. It helps to strike a balance so that you have enough money for both your needs
and wants. It enables you to gain control over your money and use it wisely.

Let us understand budgeting and its significance with the help of an activity.

Activity
It is your grandmother’s birthday! You want to buy her a gift and visit her. Your grandmother lives ten
kilometres away from your house. Your mother has given you INR500 for travel and the gift. There are
four options of travel available for you as shown below. Choose the best option that lets you travel
comfortably to your grandmother’s house and also buy her a nice gift.

Modes of travel

INR50 for bus fare INR200 for rickshaw fare INR400 for taxi fare
INR0 - as you
Cost of travel own a bicycle

A healthy, An affordable option, The fastest and the

Travel eco-friendly and free A faster and more
but you will have to most comfortable
option, but it would convenient option but
considerations wait for the bus as per option but the most
take some time to more expensive too.
the schedule. expensive.
ride 10 km.

Amount left
INR500 INR450 INR300 INR100
for gift

Think about your priorities. What are your needs for this trip? You need to get to your
grandmother's house comfortably and safely. You also need to get her a nice gift to show you
care. What are your wants? You might want a super fast and convenient ride, but that might
come at the cost of not being able to afford a good gift.

By analysing the cost of the available travel choices, you can make an informed decision that
enables you to travel comfortably and also purchase a nice gift. This planning that helps you
utilise your money in the best possible way to meet your goals is called budgeting.

16
Discuss in groups
Which travel option would you choose and why?
How much would you be able to save for the gift by choosing the travel option you selected?
Prepare a budget for the best utilisation of the money.
Compare your budget with your friends’ budgets. What do you observe?

Setting goals for saving

Setting clear and achievable goals is crucial for successful saving.
SMART goals provide you with a clearly defined roadmap that
increases the likelihood of achieving your goal at the planned
timeline. Here is a structured approach to setting SMART goals
for saving money:

Set SMART goals

S M A R T
Specific
Clearly define what
you want to achieve
and why.
Measurable
Establish concrete
criteria for measuring
progress.
Achievable
Ensure your goals are
realistic and within your
financial capabilities.
Relevant
Align your goals
with your values
and priorities.
Time-bound
Set deadlines to create
a sense of urgency and
motivation.

Create a savings plan

Once you have set your goals, develop a savings plan that outlines how you will achieve
them. Calculate how much you need to save regularly to reach each milestone on time.
Adjust your budget and spending habits as necessary to prioritise saving for your goals.

Track your progress

Regularly monitor your savings and progress towards your goals. This allows you to
celebrate milestones and adjust if you are falling behind or ahead of schedule.

Let us see an example of how to set a SMART goal for saving money for a
computer programming course costing INR5,000:
Specific: I want to save INR5,000 to enrol in a computer programming course
Measurable: I will track my savings progress monthly
Achievable: I will achieve this goal by saving INR500 each month for the next ten months
Relevant: Acquiring new computer programming skills will enhance my career prospects and
personal development
Time-bound: I will achieve this goal in ten months starting today
This goal is specific (saving INR5,000), measurable (monthly tracking of savings),
achievable (saving INR500 monthly), relevant (improving skills and career prospects) and
time-bound (within ten months).

17
Now that we have understood how to set savings goals, let us explore the various approaches
to saving money.

Different methods for saving

There are various methods for saving money. Here are some common options:
Piggy banks: These small containers or clay pots allow you to deposit coins and notes.
These are easily available and are ideal for short-term savings.
Savings accounts: Various banks offer special savings accounts for children. These
accounts not only safeguard your funds but also provide the opportunity to earn interest on
your savings.
Recurring deposits: Banks and post offices
offer recurring deposit schemes, where you
can deposit a certain amount every month for
a set period. You can withdraw the amount
with interest after the defined period.

Developing saving habit

Developing the habit of saving is highly
beneficial for achieving financial stability. It
involves consistently saving money, the ability
to identify unnecessary expenses and
inculcating discipline to avoid such expenses.

Reducing unnecessary expenses

Cutting down on unnecessary expenses is key
to gaining control over your finances. By
identifying and eliminating non-essential
spending, you can save more money, reduce
financial stress and achieve your long-term
goals. Some strategies to reduce unnecessary
expenditures include:

Avoid impulsive buying: Impulsive

buying means purchasing without much
thinking. Careful budgeting, sticking to the
shopping list and evaluating the necessity of any item before purchasing will help avoid
impulsive buying.
Reuse and recycle: Utilise existing items rather than acquiring new ones. For instance,
repurpose old notebooks by using their blank pages. This approach extends the usefulness
of current supplies and curtails unnecessary expenditure.

18
Imbibing smart financial habits
With the advent of mobile e-commerce, purchasing a product is much easier now. Attractive
marketing campaigns for exciting products target the younger generation through various
channels. Peer pressure and the fear of missing out also push young adults to purchase things
that they do not need. In these distracting circumstances, developing the habit of saving among
youth calls for discipline. Consistently setting aside money for savings will help achieve
long-term financial goals, improve financial health and develop financial security. Such discipline
will also contribute to character building and overall personality development.

Summary
• Saving money involves setting aside a portion of income to achieve financial security,
meet financial goals and prepare for emergencies. Savings = Income - Expenses.
• Needs are essential for well-being and living. Wants are desires that enhance the quality
of life but are not essential.
• Budgeting involves planning income usage over a specific period, balancing needs and
wants effectively.
• Setting SMART financial goals is crucial to guide saving efforts effectively and ensure
long-term success.

Exercises
Choose the correct answer

i. What is the formula for calculating ii. Which of the following is an example
savings? of a long-term saving goal?
a. Savings = Income + Expenses a. Buying a novel
b. Savings = Expenses - Income b. Saving for college fees
c. Savings = Income * Expenses c. Going on a weekend trip
d. Savings = Income - Expenses d. Purchasing groceries

iii. Why is budgeting important? iv. What helps differentiate needs

a. To ensure you can spend freely from wants?
b. To use your money effectively a. Impulse buying
c. To avoid saving money b. Financial goals
d. To buy everything you want c. Effective budgeting
d. Buying non-essential items

v. What does it mean to have discipline vi. What distinguishes needs from wants?
in saving? a. Needs are for survival; wants are to
a. Spending all your money enhance the quality of life
b. Consistently setting aside money b. Needs are optional, wants are essential
c. Borrowing money from others c. Needs include luxuries; wants are
d. Avoiding spending on necessary items necessities
d. None of the above

19
 True or false
i. Wants are fundamental for well-being.
ii. Saving money can help build an emergency fund.
iii. Budgeting helps in managing money efficiently.
iv. Long-term savings are for goals in the distant future.
v. Budgeting helps you gain control over your money.
vi. A SMART goal for saving should not be time-bound.

Guess the words and explain briefly about each word

i. SGNIAVS
ii. DTEIGNBGU
iii. CEENREMGY NFSDU
iv. NNCILAFIA DSILPICEIN
v. SNTWA
vi. VSAGNSI OAUCTNC

References
1
[Link]

20
4. Basics of investing
Learning objective: In this chapter, readers will explore the importance of investing and will
be introduced to various investment instruments, such as mutual funds and bonds. They will
gain an understanding of the relationship between risk and return and comprehend that
higher returns frequently involve higher risks.

The following topics shall be discussed in this chapter:

• Difference between saving and investing

Understanding investments
• Investment avenues: mutual funds and bonds

• Understanding the relationship between risk,

Risk and return return and time
• Higher returns = higher risks

Saving money
Now that we have understood the importance of
earning and saving money, let us explore how we
can grow our money through investments!

Imagine you have a surplus of INR1,000. With this

money, you have two primary options: saving and
investing.

Saving is when you keep your money in a safe

place - in a piggy bank or a savings account in a
bank. The main goal of saving is to keep your
money safe and to use it for future needs. Saving
money may not lead to a rapid growth in its value
but ensures the funds remain readily available for
future use.

Investing means using your money to acquire assets, such as mutual funds, bonds or even
starting a small business, with the intention that their value will increase over time. The goal of
investing is to grow your money faster than just keeping it safe.

It is important to note that all investments carry certain risks, such as changes in the market,
challenges in quickly selling off assets and possible losses from inflation or company issues.
Understanding and managing these risks is crucial for making smart investment decisions.

Do you know? An investment is an asset or item purchased to generate income or

increase its value over time.1

21
 Saving Investing
Higher risk. There is a chance to lose
Very low risk. Your money is safe and
Risk grows slowly.
money, but there is also a chance to make
more money.

Potential for higher returns/rewards. Your

Small returns/rewards. Your money grows
Returns slowly with little interest.
money can grow much more if the investment
does well.
Good for short-term goals (buying a game or a Good for long-term goals (higher education or
Duration book or saving for a small trip) within starting a business) over a period of five years
one-three years. or more.

Both saving and investing are important. Saving gives you security and helps you in emergencies
while investing helps your money grow over time and can help you achieve bigger financial goals.

Let us understand this through a simple example!

Imagine you have a mango orchard. After
every harvest, you save some mangoes by
storing them in a basket at a secure place in
your house. These mangoes will be readily
available when you want to enjoy one later or
in case fresh mangoes are not available.

At the same time, you faced an opportunity

cost—the chance to plant fast-growing items,
such as beans and tomatoes, which would
have given you quick cash. However, while beans and tomatoes would have provided faster
income, the mango trees you nurtured over the years yield a much larger harvest, giving you far
better profits in the long term.

Saving your mangoes is similar to keeping a portion of your resources safe for immediate or
near-future use, ensuring availability when needed. Planting some seeds, on the other hand,
involves using some of your resources to cultivate new opportunities that can yield greater
returns in the future. While investing involves risks and longer durations, the potential rewards
are considerably higher.

Ways to invest money

Investing money is similar to planting a seed today to grow a tree in the future. There are
different ways to invest money and each way offers various benefits. Let us learn about some
common ways to invest money, such as mutual funds and bonds.

I. Mutual funds
A mutual fund gathers money from multiple investors and this money is
invested in various assets, including shares, bonds or other securities, by
professional fund managers.

22
 Definition: A mutual fund is a pool of money managed by professional investment
managers. It is traded on exchanges and provides investors with access to a diverse mix
of assets chosen for the fund.2

In India, mutual funds are regulated by the Securities and Exchange Board of India (SEBI). This
organisation oversees and regulates mutual funds and develops policies to safeguard the
interests of the investors.

Do you know? SEBI is the official regulatory body for India's securities market (trading
platform for shares, mutual funds, bonds and other investments), dedicated to protecting
investors and ensuring the orderly functioning of the market.

Now, think of a mutual fund as a big pot where everyone adds some ingredients (money). A
chef (fund manager) uses these ingredients to cook a delicacy (investment). Everyone gets a
portion of the dish (returns). Let us understand the essence of every element here:

The big pot Ingredients Chef (fund Cooking Dish (investment

(mutual fund) (money) manager) (investing) returns)

The mutual fund The money that The professional The process of The returns or
in which each person who decides buying shares, profits from the
What it everyone’s (investor) how to invest bonds and other investments.
represents? money is contributes to the pooled securities.
collected. the mutual fund. money.

It allows small Similar to how The fund The fund Those who
amounts of different manager has the manager’s contribute money
money from ingredients are expertise to decisions on to the mutual
many people to needed to choose the best where to invest fund get a share
come together, prepare a tasty investments, the money of the profit
making it dish, pooled akin to a chef determine how proportional to
possible to invest money is that knows the the investment their contribution,
Why it is in a variety of needed to create right recipe to grows, similar to similar to how
important? assets that might a diversified create a how cooking everyone
be too expensive investment. delicious dish. transforms raw receives a portion
for an individual ingredients into of the finished
to buy alone. a delicious meal. dish. Thus,
benefits are fairly
distributed based
on each person's
input.

II. Bonds
Bonds are another way to invest money and they are generally safer
than mutual funds.

Definition: A bond is an investment where money is lent to a government or company at a fixed interest rate
for a set period.
Government bonds: Issued by governments to finance public projects, offering regular interest payments to
investors.
Corporate bonds: Issued by companies to raise capital for operations or expansion, with interest paid to
investors over time.
In both cases, the principal is repaid when the bond matures.3

23
 Summary
• Saving and investing have separate financial purposes: saving keeps your money safe
usually for short-term goals, while investing grows your money over a period for
long-term goals.
• Mutual funds pool money from multiple investors, managed by financial experts to
invest in different things to balance the risk.
• Bonds are loans to governments or companies that offer a small, steady return and are
generally safe investments. The two main types are government bonds for public
funding and corporate bonds for raising capital.
• Risk is the possibility that your investment might not perform as expected, while reward
is the potential profit you could earn from your investment.

Exercises

Fill in the blanks

i. Bonds represent loans made by investors to __________ or organisations.
ii. The professional who decides how to invest the pooled money in mutual funds is known as the
__________.
iii. The process of buying mutual funds, bonds and other securities is referred to as __________.
iv. A __________ is a pooled investment managed by professionals.
v. __________ is a strategy to reduce risk by spreading investments across different assets.
vi. __________ refers to the uncertainty of investment outcomes.

Match the following

i. Saving a. The chance of losing money in an investment

ii. Return b. The plan to purchase a home in ten years

iii. Short-term goals c. Using money to buy assets that grow in value over time

iv. Long-term goals d. Buying a laptop in the next six months

v. Risk e. Keeping money aside for future needs

vi. Investing f. The profit or income generated from an investment

Answer briefly
i. What is the difference between saving and investing?
ii. How does a mutual fund work?
iii. Why do higher returns often mean higher risk?

24
References
1
[Link]
2
[Link]
3
[Link]

25
5. Spending wisely
Learning objective: This chapter is about using money wisely and effectively, making
informed choices and budgeting. It highlights creating a budget, identifying income sources,
setting savings goals and managing the budget.

The following topics shall be discussed in this chapter:

Wise spending • Importance of smart spending decisions

• Budgeting
Fundamentals of budgeting • Creating and managing a budget
• Benefits of budgeting

Principles for spending wisely

Wise spending involves making informed and thoughtful decisions about using money.
Spending wisely maximises the value and benefits you receive from your expenditures while
minimising unnecessary costs.
Imagine you have INR1,000. You want to buy a new game that all your friends have. It costs
INR600. However, your school shoes are wearing out. You need to replace them soon but a pair
costs INR700.

Needs vs. wants

Without proper shoes, walking to the school will be difficult. You may be barred from entering into the
school premises. So, the game is something you want, but school shoes are something you need.

Making a budget
You decide to spend INR700 on the shoes and keep INR300 for something else or as savings.

Scoping value
You choose sturdy and durable shoes even though they cost a bit more than the cheapest ones since
they will last longer and provide better support for your feet, which is important for your daily activities.

Avoiding impulsive purchases

The game maybe tempting, but you decide to save for the game and buy it later when you have the
required amount and there is no other urgent need to fulfil.

Savings
You may also save the remaining INR300 from your pocket money for emergencies or something
special you may need or want later. Also, you can wait till next month when you can save another
INR300 from your pocket money and have INR600 to buy the video game.

26
With such planning, you will get a pair of shoes and still have money available for any future
needs that may arise. This shows how making informed choices allows us to choose the best
option that aligns with our needs based on its practicality and value.
In the above example, being informed would mean researching the quality, durability, comfort
and price of the shoes before deciding. This way, you will be spending your money wisely in the
present and investing in something beneficial in the long run or buying something that you
want.
Informed choices allow us to take control of our finances, leading to better outcomes and a
brighter future. Whether it is about money, education, health or any other aspect of life, being
informed helps in deciding better.

Budgeting
Budgeting is the process of creating a plan for spending money. This plan, called a budget,
includes estimates of income and expenditure for a certain period (typically a month or a year).
By tracking and planning where your money goes, you can ensure that you have enough funds
for fulfilling your needs, saving and discretionary spending.

Discretionary spending: A discretionary expense is something a business or household

can live without. These are considered non-essential spending and can be reduced or
eliminated without affecting household needs or business operations.1

Creating and managing a budget

A simple way of budgeting lies in the 20-50-30 rule. It is an easy way to ensure you are
spending wisely and planning for the future! Let us break it down:

Savings: Set aside 20 per cent of your income

for savings. This portion is crucial for bigger
expenditures, such as college admissions and
other learning opportunities. Savings also serve
as a safety net in emergencies. Consider
options, such as Systematic Investment Plans
(SIP) or Recurring Deposits (RD) to grow your
money over time.
Needs: Keep 50 per cent of your income for
essential items such as food, clothing,
stationery and other necessities. These are the
important expenses that you must cover every
month.
Wants: Finally, use 30 per cent of your income
for things you want but do not necessarily need,
such as toys, games, dining out or
entertainment. While these expenses are
important for enjoying life, it is essential not to
overspend in this area!
27
When budgeting, always prioritise saving. This ensures that you are prepared for future needs
and can enjoy your wants without financial stress.

Definition: A recurring deposit (RD) is a basic term deposit from banks and non-banking
financial companies, returning total deposits with interest at maturity. It is an effective tool
for developing a monthly saving habit.2

Definition: A Systematic Investment Plan (SIP) is a disciplined method of investing in

mutual funds, where an investor regularly invests a fixed amount at set intervals. This
approach helps build wealth gradually and takes advantage of compounding over the
long term.3

Let us now create a household budget, step by step:

1 Identify income 2 List planned 3

Allocate expenses
sources expenses
List all your family's income Identify your family’s sources of Set spending limits based on your
sources, such as salary, wages, expenditure, such as rent, income and expenses to stay
rental and investments. groceries, electricity bills, within your means: 20 per cent
Calculate the total to understand medical expenses, education for savings; 50 per cent for
monthly or annual income. fees, insurance, among others. necessities and 30 per cent for
selective spending.

4 Create and manage 5

Review and adjust
your budget
Build and track your budget using Review your budget monthly to
pen and paper, spreadsheets or identify areas where spending
budgeting apps. Allocate specific exceeded or fell short of the
amounts for bills, savings goals allocated amounts. Adjust your
and other expenses. Regularly budget by reallocating funds
check your spending, adjusting it between categories or revising
as needed. This keeps your savings targets as necessary.
finances on track and helps you Regularly reviewing and
reach your savings goals. adjusting your budget ensures it
remains effective in achieving
your financial goals.

28
Sample budget template:

Budget planner
Name: ................................................................................................................ Date: .............................................

Income
Date Description Amount

Expense
Date Description Amount

Total income
Total expense
Total savings

Story time!
Arya was a lively teenager living in the bustling city of Mumbai. Being a teenager, she enjoyed
hanging out with friends, eating out and dreaming about the future.
One sunny afternoon, Arya's mother handed her INR500 as she did every month, saying, “This
is your allowance for the month. Use it wisely.” However, Arya had never considered budgeting
before. Her habit was to spend money as she preferred, often running out before the end of the
month.

Determined to mend her ways, Arya decided to

learn about budgeting. She knew it was
important, especially since she wanted to save
for a new bicycle. Her first step was to
understand where her money usually went.
She sat down with a notebook and listed her
regular expenses:
Snacks and treats: INR150
Movies: INR100
Stationery and school supplies: INR50
Savings: INR50
Miscellaneous: INR150

29
Arya decided to try the 20-50-30 budgeting rule, which her mother had taught her.
First, she allocated 20 per cent of her allowance to savings, setting aside INR100. Next, she
allocated 50 per cent to needs, such as school supplies, amounting to INR250. Finally, she put
30 per cent towards wants, such as snacks and movies, which came to INR150.
With a budget in place, Arya felt confident. She began noting down her weekly purchases to
track expenditures. This made her more mindful of her spending habits. Once, her friends
invited her to a film. She checked her budget. Seeing that she had already spent most of her
entertainment money, Arya suggested going to a park instead, since it was a free activity. Her
friends happily agreed.

At the end of the month, Arya was thrilled to have

stayed within her budget. Not only had she managed
her expenses well but also saved INR100. Over the
next few months, Arya’s savings grew steadily. Finally,
the day came when she had enough money to buy her
dream bicycle.

Arya's journey taught her the significance of

budgeting. She realised that managing money was not
about depriving herself but about making informed
choices and planning for the future. This skill not only
helped her save for her bicycle but also gave her a
sense of independence and responsibility.

Arya's story is a reminder of the importance of budgeting. It helps you achieve your goals,
prepare for unexpected expenditures and make the most of your money.

Benefits of budgeting

Financial awareness: Provides clarity on

your income and expenditure, helping you Financial
understand your financial situation awareness
Goal achievement: Enables you to set
and achieve financial goals by allocating
money effectively Reduced Goal
Expenditure control: Helps in managing stress achievement
spending habits, preventing overspending
and ensuring funds are used wisely
Emergency preparedness: Builds a safety
net for unexpected expenses through
savings and financial planning
Reduced stress: Reduces financial stress Emergency Expenditure
and enables informed decision-making, preparedness control
promoting long-term financial stability

30
 Summary
• Wise spending involves maximising value and benefits while minimising expenses.
• The 20-50-30 rule is recommended for budgeting: 20 per cent for savings, 50 per cent
for needs and 30 per cent for wants.
• Budgeting provides financial awareness, cuts costs, prepares for emergencies, reduces
stress and ensures financial stability.

Exercises

Choose the correct answer

i. What is the primary goal of wise ii. What is the purpose of the 20-50-30 rule?
spending? a. Budgeting efficiently
a. Maximising debt b. Saving 50 per cent of income
b. Minimising expenses c. Minimising savings
c. Maximising value and benefits

iii. What helps to maintain financial stability iv. What should be done if there is a
and achieve savings goals effectively? change in income?
a. Ignoring unexpected expenses a. Stop saving
b. A proactive approach to budgeting b. Adjust the budget
c. Spending more on wants c. Ignore the change

True or false
i. Budgeting helps in managing and allocating money effectively.
ii. Budgeting ensures enough funds for necessary expenses, savings and discretionary spending.
iii. Making informed choices means avoiding research and not understanding options.
iv. Monitoring spending regularly is essential for managing a budget.
v. Wants take up the largest portion of a budget according to the 20-50-30 rule.
vi. A proactive budgeting approach means not adjusting your budget for unexpected expenses.

Activity: Create your budget!

Imagine you have a monthly income of INR3,000. Create your budget:
List your monthly income sources (salary and other income).
Write down monthly expenditure areas (rent, food, transportation, school supplies).
Decide how much you want to save from your income and why.
Consider additional things that you may spend on (going out, hobbies). How much will you spend
on these?
Plan for variable expenditures, such as vacations, repairing your bicycle and other unexpected
expenses.
When you are done, think about how your plan helps you reach your money goals!

31
References
1
[Link]
2
[Link]
3
[Link]

32
6. Be smart about debt
Learning objective: This chapter teaches responsible borrowing habits to avoid debts. It
encourages readers to cultivate the necessary financial skills to make thoughtful financial
choices.

The following topics shall be discussed in this chapter:

Borrowing and debt • Types of debt/loans • Interest

• Good debt vs. bad debt

Good & bad debts
• Impact of debt

Value of savings • A penny saved is a penny earned

What is debt?
The money you borrow to cover unaffordable expenses is called debt.1 It involves borrowing
money from banks and non-banking financial companies (NBFC) under an agreement to pay it
back with interest over an agreed timeline.

Definition: Debt/loan is money borrowed by one party from another to fulfil a financial
need that cannot be met immediately.2

Think of debt as borrowing a bike from a friend. You enjoy it temporarily but must return it in
good condition and on time. Similarly, borrowing money gives you immediate access to funds,
but you must repay it timely.

How debt works

The most common type of debt is a loan, such as home loans,
vehicle loans, personal loans, credit cards or even purchasing
any electronic items on equated monthly installments (EMI).
When you take a loan, you receive a specific amount and agree
to repay it with interest within a certain period. The interest is
the amount you pay to the lender besides the borrowed
amount. The loan agreement includes the rate of interest – the
percentage of interest you have to pay.

Do you know? Credit cards are a type of debt that works by revolving credit, allowing you
to borrow money repeatedly up to a set limit called the credit limit.

What is EMI? EMI is a way to repay loans by paying a fixed amount every month until the loan
is fully paid off. For example, if you borrow money to buy a smartphone or a bike, you can repay
it in small, regular payments instead of paying the full amount at once!

33
Types of loans
Financial needs keep changing and the various types of loans enable you to fulfil those needs.

Definition: A loan is the money someone borrows from a bank or financial institution. The
borrower must repay the money in agreement with defined terms and conditions, such as
interest, repayment period and collateral, if any.3

Types of loans based on the repayment plan:

Secured loan: It is backed by a guarantee (collateral), such
as house, gold, land or vehicle. If you cannot repay the loan,
you may lose the collateral. Secured loans usually have
lower interest rates and longer repayment periods.
Unsecured loan: It is based on your record of borrowing
and repaying, requires no collateral, has higher interest
rates and is easier to get.
Fixed-rate loan: It has a fixed interest rate throughout
the period of the loan.
Variable-rate loan: Its interest rate fluctuates within a
set range throughout the term of the loan.4

Types of loans based on their specific purposes:

Personal loan: Also known as a consumer loan, it is used for various personal expenses,
such as house repairs, medical bills, among others. Personal loans typically have a fixed but
higher interest rate and must be repaid in regular installments over a short duration.
However, some lenders may offer reduced rates if you have a good credit history or choose
to repay the loan faster.
Home loan: It helps you buy a house, which can also be used as collateral. These loans
typically last for a long duration and have varying interest rates.
Education loan: It is used for pursuing higher education; covers tuition fees, books and
other related costs and has lower interest rates than other loans.
Besides these, there are vehicle loans, business loans, gold loans and agricultural loans, providing
the financial support that people need. Understanding lenders’ terms and conditions and
comparing their interest rates and repayment plans is crucial for selecting the right loan option.

Introduction to interest
Interest is the fee that lenders charge borrowers in addition to the loan amount. The interest
rate is the percentage of the borrowed amount paid as interest. The higher the interest rate, the
higher the repayment amount.

Definition: Interest is the extra amount you pay for borrowing money or the reward you
earn for lending money.5

34
Good debt vs. bad debt
Good debt helps you to build assets or invest for your future, potentially boosting your earnings
and returns. In contrast, bad debt has high interest rates and becomes a liability, trapping you in
a debt cycle. Understanding their differences is important for making smart borrowing
decisions.

What is good debt?

Good debt is the borrowed money that gives more value in return6 and can be paid back as
agreed. Managing debt responsibly improves your credit score.

Definition: Good debt refers to borrowing money to build wealth or more value and
repaying it promptly as agreed.7

Do you know? A credit score is the rating that indicates to lenders whether to lend you
money and at what interest rate. Higher scores mean lower risks and better terms of loan.8

Examples of good debt:

Home loan: The value of the house is expected to increase
over time
Education loan: Higher education can lead to better job
opportunities and higher income
Business loan: The value of a business is expected to grow
with time

Sam and the library

Sam loved borrowing books from the library. He always
returned them on time, so the librarian trusted him and let
him borrow more books. Sam had a good library record
because he was responsible.
But one time, Sam forgot to return his books for weeks.
The librarian marked this in his library record and Sam could
not borrow more books until he improved his record again.
Moral: A credit score reflects how responsible you are with
borrowing money or managing financial commitments,
similar to Sam's library record showing his borrowing
habits. A good credit score helps you borrow more in the
future, but if you do not pay back on time, your bad credit
score can prevent you from getting what you need. It is
important to be responsible to keep a good credit score.

35
What is bad debt?
Bad debt is borrowed money that does not increase in value and cannot be paid back on time.
Bad debt affects your credit score. A good debt, such as an education loan, can become bad
debt if not paid back within the agreed period.

Definition: Bad debt refers to money borrowed to buy things that do not grow in value. It
also refers to the loans that cannot be recovered because the borrower is unable to
repay.6

Examples of bad debt:

Credit cards: Interest keeps increasing until the monthly credit card balance is paid off
Luxury goods: Many luxury goods depreciate over time and do not have much practical use
Auto loans: Vehicles lose value quickly and should be purchased on loan only if necessary
Electronic goods: Mobile phones, tablets and such items get outdated and hence lose value
quickly, often leading to higher costs when bought on credit.

Avoiding bad debt

By saving money and borrowing wisely, you can avoid unnecessary debt. Besides, you should:
Always pay your bills on time, without fail
Maintain emergency fund for unexpected expenses, reducing the need for borrowing
Prioritise paying off existing debts before taking on new ones
Consider whether the money you will borrow will only satisfy a short-term desire you cannot
afford or offer some lasting value too

Importance of timely repayment

Paying back loans on time is important because it:
Shows gratitude and builds trust with the lender
Improves credit record and indicates that you are a responsible borrower

36
Impulsive buying and responsible borrowing
Making quick and unplanned purchases purely based on emotions is called impulsive buying,
which is made convenient by easy access to credit cards.

Definition: An impulsive purchase is typically spontaneous and can cause someone to

spend beyond their budget.9

To avoid it, it is essential to understand responsible borrowing:10

Be aware of hidden costs when borrowing, such as processing fees and late payment
penalties, as these can increase your total repayment amount.
Do not get influenced by online hype
Critically analyse the information shared via advertisements and on social media
Calculate how much you can set aside for repayment and borrow accordingly
Buy only what you need or require
Save money to minimise borrowing

This way, you can strengthen your future financially. Remember, “a penny saved is a penny
earned”!

Summary
• Debt is borrowing money, which must be repaid with interest, for purchases beyond
current financial means.
• Loans come in various forms (secured, unsecured, fixed-rate, variable-rate) for different
purposes (personal, home, education).
• Good debt (education and home loans) builds assets or increases future earnings, while
bad debt (credit cards for unnecessary purchases) causes financial stress.

37
Exercises
Answer in brief
a. Define debt in your own words.

b. Differentiate between borrowing money from a friend and a bank.

c. What are the two main reasons you may take a loan?

d. Differentiate between good debt and bad debt with examples.

e. Why is it important to manage debt responsibly?

Determine the type of spending listed below using the options given in the box.
You can also choose multiple answers.

1. Good debt 2. Bad debt 3. Impulsive purchase 4. Responsible purchase

No. Spend Type

a. Education loan
b. Energy-efficient home improvement loan
c. Avoiding unnecessary purchases in the supermarket
d. Furniture loans with high interest
e. Comparing prices before buying a new phone
f. Buying a newly released video game on credit card
g. Saving up for a desired item instead of using credit cards
h. Buying a library card for reading materials

Activity: The smartphone challenge!

Riya has been eyeing a new smartphone. It costs INR20,000. Luckily, Riya has saved up exactly that
amount. However, a new idea pops into her head – what if she takes a loan instead?

Based on the above scenario, discuss:

The advantages and disadvantages of using savings and taking a loan
The advice you would give Riya as her friend and why
The factors that Riya should consider before deciding

38
 Bonus challenge!
Calculate the total cost of the phone if Riya takes a loan with a 10 per cent interest rate for one year.
Hint: Simple interest = (Principal x Rate x Time)/100. Would this change your recommendation for Riya?
If the loan was based on compound interest, the formula would be:

A: The total amount that accumulates

P: The original principal amount
r: The interest rate, converted to a decimal
n: The number of times interest compounds in a year
t: The duration (in years) for which interest has been adding up

References
1
[Link]
2
[Link]
3
[Link]
4
[Link]
5
[Link]
6
[Link]
vs- bad-debt/
7
[Link]
8
[Link]
9
[Link]
10
[Link]

39
7. Understanding banks
Learning objective: This chapter explains banks' roles in the economy, their functions
and banking safety. Understanding different types of banks and banking methods will
help readers use banking services wisely.

The following topics shall be discussed in this chapter:

• Introduction • Their economic importance

Banks
• Types

• Banking services • Types of accounts

What banks offer
• Different banking modes

• Account opening
Banking smartly
• Deposits and withdrawals

Safety and security • Security and confidentiality

Understanding banks
Banks are institutions specialising in monetary transactions and related services. Acting as
financial intermediaries, banks accept deposits and provide loans to individuals and
businesses.1

Importance of banks:
Saving and lending: You can save money in
banks and also borrow from them as loans.
Security and growth: Banks facilitate saving
money and pay interest to depositors.
Payment convenience: Banking products and
services make payments easy.
Economic growth: Businesses and governments
can acquire funds from banks for projects and
investments.
Economic stability: Banks stabilise the economy
by managing money supply and interest rates.

Do you know? The first bank in India, the Bank of Bengal, was established by the British
in 1809 to serve their colonial government. It was soon followed by the Bank of Bombay in
1840 and the Bank of Madras in 1843.2

40
Classification of banks in India*

Commerical Public Private

sector Foreign RRB
bank sector

Co-operative Urban State

bank co-op. co-op.

Small
finance bank

Payments
bank

The list of banks can be accessed from the RBI website –

[Link]

The major types of banks governed by the Reserve Bank of India (RBI) are commercial banks,
co-operative banks, small finance banks and payment banks. Let us learn more about them.

Commercial banks
These banks accept deposits, allow withdrawals, lend money, facilitate cheque payments and
offer online and phone banking. Operating for profit, these banks serve the financial needs of
both individuals and businesses.
Types of commercial banks:

Bank type Description

Nationalised
Banks that are owned and operated by the GoI
banks

Private sector
banks – Indian Banks that are owned by private individuals or Indian entities
banks

Private sector
Branches of international banks that provide banking services to
banks – foreign
Indian customers
banks

41
Co-operative banks
These banks are small financial institutions that provide affordable loans to support local needs,
particularly for small businesses and agriculturists in urban and rural areas, operating on
principles of cooperation and shared benefits.

Scheduled state co-operative banks

Scheduled state co-operative banks (SSCB) or state co-operative banks are listed in the second
schedule of the RBI and must maintain a minimum level of reserves with the RBI. They are
allowed to participate in the clearing house and offer a broader range of banking services. These
banks are further divided into:

Bank type Description

Scheduled urban Scheduled UCBs accept deposits from the public and offer a
co-operative banks (UCB) range of financial services particularly, in urban areas.

District co-operative Local banks that operate within specific districts, supporting
banks agriculture and small businesses.

Non-scheduled state co-operative banks

Non-scheduled state co-operative banks (NSSCB) are not listed in the RBI's second schedule,
which means they have fewer rules to follow and more freedom in how they operate. However,
this also comes with higher risks. They do not have access to RBI liquidity support, making it
difficult for them to handle cash shortages. Additionally, deposits in these banks might not be
insured by the RBI, which could put depositors at risk if the bank fails.

Non-scheduled urban co-operative banks

Non-scheduled urban co-operative banks (NSUCB) are urban co-operative banks in India
operating at an urban level and do not have the same regulatory status and benefits as
scheduled banks.

42
Apart from the banks mentioned above, there are other banks that are governed by RBI. These
are mentioned below:

Bank type Description

RRBs were created to support the rural economy by

Regional rural banks5 offering credit and financial services to small and marginal
(RRB) farmers, artisans and small entrepreneurs, focusing on
agriculture, trade and industry development in rural areas.

Small finance banks focus on providing basic banking

services such as accepting deposits and lending to
Small finance banks6
underserved groups, including small businesses, marginal
farmers, micro industries and the unorganised sector.

Payment banks offer limited services, primarily accepting

deposits (up to INR 2,00,000) and facilitating payments and
Payments banks remittances. They cannot provide loans or credit cards,
instead focus on financial inclusion for low-income
households, small businesses and unbanked areas.

Primary functions of banks

Accept deposits: Banks accept deposits in savings, current and fixed accounts and allow
withdrawals as required.

Provide loans: Banks give loans to earn interest, which is their primary source of income.
They maintain a money reserve and lend the remainder through overdrafts, cash credits,
short-term loans and other schemes.

Credit creation: Banks create an account for loan applicants and transfer the loan amount
into it instead of giving in cash, thus creating money as bank credit.

Types of commercial bank accounts:

Savings account Current account Fixed deposits Recurring account

Encourage systematic
Purpose Encourage savings Facilitate business Savings and investments
savings habit

Customer base should be

everybody including specific Accepts fixed amount
Customer base: Long-term commitment
Description to students, salaried
Business users to deposit funds
deposit every month for
individuals, businessmen, a predetermined period
senior citizen, among others

Receives higher interest

Receives no
Receives nominal Receives higher interest than a savings account,
Interest interest
interest; may charge
than a savings account depending on the
fees for services
chosen tenure

43
Different channels of banking
Having covered the essential services offered by banks, let us now explore the various modes
of banking, each designed with unique advantages to cater to different customer preferences
and needs.

Branch banking: It involves customers visiting physical bank branches to perform financial
transactions, such as deposits, withdrawals and inquiries, interacting directly with bank staff.

Automated teller machine (ATM): It allows customers to perform basic banking

transactions, such as cash withdrawals, balance inquiries and fund transfers, without visiting
a branch. ATMs are available 24x7 and are widely accessible across urban and rural areas.

Internet banking: Also known as online banking, it enables customers to perform banking
transactions via the bank website. It supports various types of transfers and payments, with
two-factor authentication (such as one-time passwords - OTPs) and data encryption to
protect customer information.

Mobile banking: Accessible through dedicated banking apps, mobile banking allows
customers to manage finances directly from their smartphones. Services include checking
balances, transferring funds and paying bills, all secured by biometric authentication and OTP
verification. Mobile banking is more secure, as transactions can only be performed through
the user's own device.

Phone banking: Customers can access banking services over the phone via an automated
system or by speaking to a representative, enabling tasks such as balance checks and fund
transfers.

Digital wallets: Digital wallets are applications that securely store payment information,
enabling users to make digital purchases without the need for cash or physical cards.

Business correspondents (BCs): These are agents hired by banks to offer essential banking
services where physical branches are impractical. BCs process loans, promote savings, offer
financial advice and manage small deposits and loans.

Management of finances
How to open a bank account?
Before opening a bank account, you need to select a bank that suits your requirements and
preferences based on its location, services and interest rates. Compare different banks to find
the best fit for your needs. You can open an account by visiting the bank branch with your
identification documents and a small deposit. Alternatively, you can open an account online
through the bank's website anytime.

44
 Physical Online

Visit the nearest bank branch. Visit the bank’s website.

Request an account opening form from the bank Select the type of account that suits your needs,
executive. such as a savings account for personal use or a
current account for business purposes.
Fill up the form with your personal and KYC details.
Fill up the account opening form, attach a
Make the initial deposit as required by the bank.
photograph and provide KYC documents, such as
Once the bank verifies your details, you will receive your PAN card, passport or Aadhaar card.
a passbook and a chequebook.
Read and understand the bank's terms and
You can also apply for internet banking services at conditions before signing. If you have questions,
the same time. ask the bank representative for clarification.

What is KYC?
KYC or Know Your Customer, is a process where banks check your identity using documents
such as Aadhaar or PAN card. This ensures your account is secure and prevents fraud. Similarly,
e-KYC (Electronic Know Your Customer) is a digital process for verifying the identity of
customers using online systems, making it faster, more secure and paperless. The benefits
include reducing fraud, simplifying account openings and providing instant verification,
enhancing convenience for both users and institutions.

Depositing, withdrawing and transferring money

Depositing money involves adding funds to your bank account through cash, cheque or online
transfers, often using a pay-in slip with account details. Withdrawing money allows account
holders to access their funds, either through an ATM, bank branch or electronic transfers. In
areas with limited banking access, Business Correspondents (BCs) provide essential services,
such as deposits, withdrawals and transfers. ATMs, available 24/7, offer convenience for
withdrawing cash, checking balances and in some cases, depositing funds.

Sample pay-in slip

45
Activity time!
A cheque is a written note notifying the bank to pay a certain amount of money to the recipient
named on the cheque. It works for both current and savings accounts and lets you give money
to others or deposit it into your account through the bank. Let us learn how to write a cheque!

1. Date
2. Pay – name of the person to whom the money
has to be paid
A filled-out cheque looks as shown below:
3. The amount that has to be paid – in words
4. The amount that has to be paid – in figures
5. Signature of the person sending the money
6. Crossing a cheque involves drawing two
parallel lines across it, indicating that the funds
should be deposited directly into the payee's
bank account rather than paid out in cash. It
adds security by preventing the cheque from
being cashed by unauthorised individuals.
7. The account number is given by the bank to
the account holder

Importance of saving and earning interest

Saving money in a bank is important because it keeps your money safe and helps it grow over
time. The bank pays you extra money called 'interest' for keeping your savings there. The more
you save and the longer you keep it, the more interest you earn. This helps you prepare for
future needs, emergencies and goals.
Let us take an example to understand how interest works and increases your savings
effectively.
Imagine you have INR2,500 in your savings account at ABC Bank. For example, if your bank
pays you an interest rate of four per cent per year, you can find out how much interest you will
earn in one year using this formula:

46
 Simple interest = Principal x Rate x Time
Where:
Principal is the amount of money you save (INR2,500).
The rate is the interest rate (4 per cent or 0.04).
Time is the period (1 year).
So, the calculation will be:
Interest = INR2,500 × 0.04 × 1 = INR100
This means you will earn INR100 as interest in one year. After one year, you will have a total of
INR2,600 in your savings account (INR2,500 original amount + INR100 interest).

Banking security and confidentiality measures

Banking security measures are essential for protecting customers' financial information.
The RBI uses special coding (data encryption) to protect online transactions, two-factor
authentication for secure logins and secure systems to prevent unauthorised access to
accounts.

Banks monitor accounts for suspicious activities and send alerts for unusual transactions.
Privacy policies ensure that customer information is kept confidential and not shared
without consent.

The RBI also educates customers on safe banking practices to help prevent fraud. For
cyber-related complaints, individuals can call the toll-free helpline at 1930 for help.

47
Understanding bank security measures
Bank security measures are designed to protect our money and personal information from
thieves. Here is how they work and what we should do to stay safe:

Encryption
Banks use special codes to keep our information safe before, after and during online
transactions. This stops hackers from accessing our confidential information.

Secure login
When we log into our bank accounts, we use passwords, fingerprints or special codes
sent to our phones. This ensures only we can access our accounts.

Transaction monitoring
Banks watch our transactions to make sure nothing strange is happening. If they see
something wrong, they can stop it.

Physical security
Banks have cameras, alarms and locked doors to protect the money inside from thieves
and robbers.

Educating about scams

Banks regularly send messages and conduct various awareness campaigns to educate us
about the tricks that frauds and scammers use, such as fake emails or calls asking for our
passwords. They remind us to be careful and never share our private information.

Summary
• Banks accept money deposits for safekeeping and give interest in return.
• Commercial banks manage deposits, offer loans, enable cheque payments and facilitate
online and mobile banking.
• Various banking modes include traditional branch banking, ATM services, internet
banking, mobile banking, digital wallets and BCs.
• Banks use encryptions, secure logins, transaction monitoring and physical security
measures to ensure privacy and prevent fraud.

48
Exercises
Fill in the blanks
i. The RBI regulates ________ policy and oversees banks in India.
ii. __________ banks are owned and operated by the government.
iii. Savings accounts encourage _________ and provide a safe place for funds.
iv. ATMs allow customers to ________ money, deposit funds and check balances.
v. Interest earned on savings accounts is based on the ___________.
vi. ___________ were established to support the rural economy by providing credit and financial
services to small farmers, artisans and entrepreneurs.

True or false
i. Opening an account involves visiting the nearest bank branch.
ii. RBI regulates only private-sector banks in India.
iii. Credit facilities provide ongoing access to capital without reapplying.
iv. Mobile banking is conducted using a computer.
v. Banks act as intermediaries between savers and borrowers.
vi. Business correspondents assist in extending banking services in remote areas.

Activity time!
In a village, there was a farmer who had a great harvest. He wanted to keep his hard-earned
money safe. So, he decided to visit a nearby public bank. At the bank, he opened an account
where he could deposit his money securely. The friendly relationship manager at the bank
explained everything to him step by step. He learned how to open the account, which meant
filling out some forms with his details. Now, reflecting on these educational steps, let us
explore the following discussion questions:

Why did the farmer want to save his money in a bank?

How will he deposit and withdraw cash?
What did he learn about saving and interest?
Why is it important to keep money safe in a bank?

References
1
[Link]
2
[Link]
a-brief-history/CFC35A9D69320A6E4BC8C1ADB8BF4D9E
3
[Link]
4
[Link]

49
8. Insurance and financial security (for individuals)
Learning objective: In this chapter, readers will understand the concept of insurance, the
different types of insurance, how it works and why it is important. They will also explore
various insurance schemes launched by the GoI.

The following topics shall be discussed in this chapter:

Overview of insurance • What is insurance? • Types of insurance

• How does insurance work?

Importance of insurance
• Why is insurance important?

Government schemes • Key insurance schemes by the GOI

What is insurance?
Insurance is an agreement between an insurance company (insurer) and an individual (insured),
where the insured regularly pays a premium (a small payment at fixed intervals) to the insurer.
The insurer guarantees financial assistance to the insured or the family of the insured in case of
the occurrence of the unfortunate events specified in the agreement.1

50
Types of insurance2
In India, insurance is broadly classified into two types: life insurance and non-life insurance or
general insurance. These two types are further classified into different categories.

Insurance

Life insurance

Term insurance: Provides coverage for a specified term, paying a death benefit if the policyholder passes
away during the term
Term insurance with investment plan: A life insurance policy that combines term coverage with an
investment component, offering both protection and potential wealth accumulation

Non-life/general insurance
Health insurance: Covers medical expenses and healthcare services for insured individuals
Vehicle insurance: Covers financial loss due to vehicle damage or theft and accident liability
Travel insurance: Covers unexpected events during travel, including trip cancellations, medical
emergencies and lost luggage
Home insurance: Protects homeowners against damages to their property and personal belongings
caused by theft, fire and natural disasters.
Fire insurance: Covers damages to property caused by fire, including the cost of repairs and lost
belongings
Agriculture insurance: Protects farmers against losses due to natural disasters, pests or crop failures
affecting their agricultural activities
Accident insurance: Provides benefits in the event of accidental injuries or death
Parametric insurance: A type of insurance that pays out a predetermined amount if a specific event
occurs, such as a natural disaster, rather than the loss incurred
Income protection insurance: Provides financial support by replacing a portion of lost income if the
insured is unable to work due to illness or injury

Imagine moving into your new home and facing

property damage due to a fire accident. This is
where fire insurance helps. As you grow older,
you will learn about the various types of
insurance: health insurance for medical
expenses, vehicle insurance for your vehicle's
protection and home insurance to safeguard your
residence and belongings.

51
How does insurance work?
Ramya enjoys riding her scooty to college every
day. One day, while riding, she meets with an
accident. Her scooty is damaged and she needs
medical treatment for her injuries as well.
Fortunately, Ramya's family has both health
insurance and vehicle insurance! Let us see
how these insurance policies help Ramya and
her family.

The insurance policy: These documents explain how and when the insurance company will
provide financial assistance.
Coverage: In Ramya’s case, the health insurance covers medical bills for her injuries, while the
vehicle insurance covers the repair costs for her scooty.
Premium: The premium is the amount that Ramya's family pays regularly to the insurance
company.
Making a claim: After the accident, Ramya’s family makes a claim. The insurance company
reviews whether it matches the policy terms. It is important to thoroughly review the insurance
policy and understand its terms and conditions as well as the claims process, which varies
depending on the insurance company and the policy.
Inspection: After a claim is made, the insurance
company inspects the damages to confirm the details
of the accident and the costs involved.
Payout: There are two types of payouts:
Cashless: The insurance company pays the hospital
or repair shop directly, so Ramya’s family does not pay
upfront.
Reimbursement: Ramya’s family pays the bills first
and then submits a claim to the insurance company
for a refund.

Why is insurance important?

Let us understand the importance of insurance by analysing four different situations:

Situation How insurance could have helped?

Suresh and Ramesh are friends with different

views on financial planning. Suresh trusted in
the security of insurance, while Ramesh relied A basic life insurance
on his savings and questioned paying for policy could have provided
insurance. Tragically, Ramesh died in an a lump sum payout and
accident. His savings only lasted a few months, eased their financial burden.
causing hardship for his wife, children and
parents.

52
 A health insurance
Raju ignored a persistent cold that turned into
policy could have covered
pneumonia, landing him in the ICU for a week.
these expenses, allowing
The medical bills totalled INR70,000. This
Raju to focus on recovery
depleted his savings and caused him financial
without worrying about
stress.
medical bills.

Accident insurance
Prithvi was working at a construction site when would have covered his
he accidentally slipped and injured his leg. He medical expenses and
needed immediate medical treatment and had provided him with some
to take time off from work to recover. This financial help while he
meant extra medical bills and no income for a was unable to work,
few weeks. allowing him to focus on
getting better.

Agriculture insurance
could have compensated
Ravi was looking forward to a good harvest this
him for the loss of his
year. However, a sudden flood destroyed his
crops, helping him cover
crops. He faced significant losses, making it
expenses and plan for the
difficult for him to support his family.
next harvest without
financial hardship.

With parametric
insurance, Sita would
have received a payment
based on the rainfall levels
Sita lives in a village that often suffers from automatically. This
drought. One year, the lack of rain caused her financial support would
crops to fail, leaving her family in a tough have helped her buy food
situation. and other essentials
during the drought,
allowing her to focus on
finding ways to prepare
for the next harvest.

Life is full of unexpected events, making insurance necessary. Insurance covers unexpected
costs, such as medical bills, vehicle repairs, house damage or even replacing stolen belongings.
It provides a financial safety net for the insured's family, offering peace of mind and readiness to
handle unexpected situations.
Having explored what insurance is all about, its different types and its significance, let us now
examine several significant government-related insurance schemes that offer benefits to the
citizens of India.

53
Where can you buy insurance from?
Insurance can be bought from different places, such
as directly from insurance companies, through
licensed agents or brokers who help find the right
policy, online platforms where you can compare and
purchase policies easily or through the official
government websites and portals.

Banks also offer insurance and government schemes

provide specific insurance options, such as crop or
health coverage for those in need.

When buying life insurance, it is important to select a

nominee—a person, usually a family member, who will
receive the insurance payout if something happens
to you!

Insurance schemes by the Government of India3

The GoI has introduced various low-cost insurance schemes to provide sufficient health
coverage and retirement plans to the citizens at a minimal yearly premium.

Type Scheme details

• Age limit: 18-50 years

Pradhan Mantri Jeevan Life insurance
• Sum assured: INR2,00,000
Jyoti Bima Yojana (PMJJBY) scheme
• Premium: INR436 per annum

• Age limit: 18-70 years

Pradhan Mantri Suraksha Accident insurance
• Sum assured: Up to INR2,00,000
Bima Yojana (PMSBY) scheme
• Premium: INR20 per annum

• Age limit: 18-40 years

• Sum assured: Up to INR5,000 per month
Atal Pension Yojana (APY) Retirement plan
• Premium: Depends on age and the
chosen plan

• Age limit: None

Ayushman Bharat or
• Sum assured: Up to INR5,00,000 per
Pradhan Mantri Jan Arogya Health insurance
family
Yojana (PMJAY)4
• Premium: INR100 per month

54
 Summary
• Insurance covers financial losses from accidents, illnesses, property damage and
unexpected events, ensuring financial security and peace of mind.
• Different types of insurance include health, life and travel insurance, among others.
• The GoI offers various insurance schemes at affordable annual premiums.

Exercises

Jumbled words
i. RESINDU – The person protected against financial losses through an insurance policy
ii. IMRPEUM – A small payment made regularly to an insurance company
iii. CILMA – A request to an insurance company for compensation
iv. GVEOREAC – The extent of protection provided by an insurance policy

Match the following

Scenario Type of insurance

i. Ravi wants to ensure his family has financial support in a. Vehicle insurance
case of his accidental death

ii. Parvathi’s father travels abroad frequently and is looking

b. Medical insurance
for safe travels

iii. Isha’s family needs accident, natural disaster and theft

protection for their new vehicle c. Travel insurance

iv. Mohit has a medical issue and is concerned about the

d. Life insurance
expenses of medical treatments and hospital stays

55
 Activity time!
Understanding family insurance
Have a conversation with your parents or guardians about different types of insurance policies they
have purchased for the family.
For each insurance policy, note down the following details:

Type of insurance (such as tlife insurance, health insurance,

vehicle insurance, home insurance)
What is covered under the policy (such as accidental death,
hospitalisation expenses, vehicle repairs, home damages)
The sum assured or the maximum amount the insurance
company will pay in case of a claim
The term or duration for which the policy is valid
The benefits of the policy and why you think your family
requires that policy

Prepare a table or a list with the above information for all the insurance policies your family has and
discuss it with your classmates the following day.

References
1
[Link]
2
[Link]
3
[Link]
4
[Link]

56
9. Safeguarding your digital and card transactions
Learning objective: This chapter teaches how to secure finances in a cashless world,
covering types of fraud, secure online practices and password tips. It also explains how to
safeguard personal data, recognise fraudulent websites and respond to fraud by following
RBI guidelines and protection measures.

The chapter discusses:

Understanding digital and • The need for securing finances in a

card-based financial security cashless world

• Types of fraud
Identifying and • Secure practices for card and online transactions
mitigating fraud • Importance of password and password
creation tips

• Guidelines to safeguard personal and

Safeguarding personal financial data
information • Ways to distinguish secure websites and
prevent falling victim to scams

• Actions to be taken in the event of a fraudulent

Responding to fraud incident
and RBI support • Referring to the RBI guidelines and consumer
protection measures

Need for securing finances in a cashless world

In today's world, people use less cash and more digital methods such
as cards or online payments to buy things. This makes transactions
faster and easier but also requires us to protect our money from theft
or misuse.
Imagine Raju, a farmer in your village. He sells his products at the
market and receives payments through an app on his phone. Since he
is not carrying cash, it is safer, but he must ensure his app and bank
card are secure. To do this, Raju uses strong passwords and does not
share his card details with anyone. By following such steps, Raju
ensures that no one else can access his money or misuse his
digital account.
Securing your finances is important to protect your hard-earned money
in a cashless world. In this chapter, we will learn more about how to
identify and safeguard us against fraud.

57
Identifying and mitigating fraud1
Types of fraud Description Example Do’s Don’ts
Sita gets an email
Fake links sent via
pretending to be Always check the Never click on
email or message
Phishing links from a bank, sender's email unknown or
to steal
asking for login and website URL suspicious links
information
details

A caller pretends Never share

Hang up if asked
Fake phone calls to be from your personal details
for personal or
Vishing calls to steal personal bank and asks for on calls from
banking
information your account unknown
information
number numbers
Ramu tries to buy
Scammers a phone online, Do not make
Fraud using Use trusted
pretending to sell but the seller payments without
online websites for
items online to disappears after verifying the
marketplaces buying and selling
steal money receiving the seller
money

Duplicate SIM Ravi’s SIM gets Contact your

created to cloned and mobile provider Do not share your
SIM cloning intercept someone else immediately if SIM details with
messages and receives his you notice anyone
calls banking OTPs strange activity

Rita scans a QR
code from a buyer
Scammers send Verify the QR Never scan a QR
Scam through and unknowingly
fake QR codes to code source code from
QR code scan transfers money
steal money before scanning untrusted sources
instead of
receiving it
Do not send
Fraudster A scammer
money based on
Impersonation pretends to be impersonates a Double-check by
social media
through social someone you friend and asks calling the person
messages
media know to ask for for urgent money directly
without
money via a message
confirming

Mohan uses a
public phone Do not use public
Public charging Use your own
charging station USB charging
Juice jacking ports used to charger and
and later finds his ports without
steal data power bank
personal caution
information stolen

A fraudster calls Do not share your

Scammer tricks
Geeta and asks OTP with anyone,
OTP based you into sharing Always keep your
for her OTP to even if they claim
frauds OTPs for OTP private
complete a fake to be from a
transactions
payment trusted source

58
Secure practices for card and online transactions2
When using cards or making online transactions, it is important to practice caution. Here are
some secure practices to follow:

Use trusted websites: Only shop on well-known and secure

websites.

Avoid public Wi-Fi: When making transactions, avoid using public

Wi-Fi networks. Instead, use your mobile data or a secure home
network to prevent unauthorised access.

Keep your details private: Never share your card details, PINs or
passwords with anyone. Scammers often pretend to be from
banks or companies to get this information.

Monitor your accounts: Regularly check your bank statements and

transaction history for any unauthorised charges. If you notice
something suspicious, report it to your bank immediately.

Enable alerts: Set up alerts for your bank transactions so that you
are notified of any spending. This can help you catch fraud quickly.

Importance of password and password creation tips3, 4

Passwords are your first line of defence in protecting your online accounts. A strong password
helps keep your personal information safe from hackers. If your password is weak or easy to
guess, it can lead to unauthorised access to your accounts.

59
Here are some tips for creating strong passwords:

PxH1$n!8
Use a mix of characters: Combine uppercase letters, lowercase letters, numbers
and special symbols (@, #, $) in your password.

Keep it long: Aim for at least 8 to 12 characters. The longer the password, the
harder it is to crack.

Avoid personal information: Do not use easily accessible information such as your
name, birthday or phone number.

Use unique passwords: Do not use the same password for multiple accounts. If
one gets hacked, others will remain secure.

Change passwords regularly: Update your passwords periodically and especially

after any suspicious activity.

Safeguarding personal information

Guidelines to safeguard personal and financial data

Limit sharing: Only give personal information when absolutely necessary. Be

careful about sharing details on social media.

Strong passwords: Create strong and unique passwords for each account.
Change them regularly and keep them private.

Update software: Regularly update your devices and apps to protect against
new threats.

Beware of phishing: Be cautious of emails or messages asking for personal

information. Legitimate organisations will not ask for sensitive info this way.

Use two-factor authentication: Turn on two-factor authentication (2FA)

when available for extra security.

60
How to identify secure websites and avoid scams?

Check for "HTTPS": Look for "[Link] at the beginning of the website URL. The 's' means it
is secure.
Look for a padlock icon: A padlock symbol in the address bar indicates that the site is secure.
Research the website: Before buying or sharing information, check if the site is trustworthy
by reading reviews.
Avoid suspicious links: Do not click on links from unknown sources. Always type the website
address directly into your browser.
Watch for too-good-to-be-true deals: If an offer seems too good to be true, it probably is.
Be cautious.
Use trusted payments: Use secure payment methods when shopping online. Avoid sending
money through unfamiliar channels.

Story time!
In a small village, a young boy named Ravi loved exploring the internet on his phone. One day,
while browsing, he saw an advertisement for a smartphone at an unbelievably low price.
Excited, Ravi clicked on the link but hesitated when a pop-up asked for his personal details.
Recalling his teacher’s advice about safeguarding personal information, he noticed the URL
started with "[Link] instead of "[Link] He remembered that secure websites begin with
"[Link] so he quickly closed the tab. Curious and cautious, Ravi asked his sister, Priya, for
help. After checking the website, she confirmed it was a scam designed to trick people into
giving away their money and information.

Feeling relieved, Ravi created strong

passwords for his online accounts and enabled
two-factor authentication for added protection.
***** Later that week, he received a call from
someone claiming to be from a bank, asking
for his account details. Remembering the
lessons about phishing, he refused to share
any information and hung up.
“Good job, Ravi! You were smart to protect
your information,” his father said proudly. Ravi
felt happy to have made the right choices and
decided to share his knowledge with friends
and family in the village. He taught them to be
careful about what they shared online and
how to recognise secure websites.

Through his caution and newfound knowledge, Ravi helped protect himself and his loved ones
from scams, showing that being careful in a digital world can make a big difference in keeping
personal information safe!

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Responding to fraud and RBI support 5
If you ever fall victim to fraud, it is important to act quickly. Here is what you should do:

Actions to take in the event of a fraudulent incident

Contact your bank immediately: If you notice any unauthorised transactions, call your bank
or financial institution right away to report the fraud and freeze your account if necessary.
File a complaint: Report the incident to local authorities and file a complaint with the police.
This helps in tracking down the fraudsters.
Change your passwords: Update your online banking and email passwords to prevent
further access.
Monitor your accounts: Keep a close eye on your bank statements and transaction history
for any suspicious activity.

Referring to RBI guidelines and consumer protection measures

The RBI provides guidelines to help consumers protect themselves from fraud. Here are some
key points:

Know your rights Consumer helplines Stay informed

The RBI emphasises that The RBI has dedicated Regularly check the RBI
consumers have the right helplines and online website for updates on
to seek assistance and platforms where you can consumer protection
file complaints regarding report fraud and seek measures and tips to
fraudulent activities. guidance on how to stay safe from fraud.
protect your finances.

By following these steps and utilising RBI resources, you can respond effectively to fraud and
protect your finances.

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 Summary
• Protect your accounts with strong passwords, keep personal details private and monitor
transactions for fraud prevention.
• Stay alert to phishing, vishing, SIM cloning, QR code and other scams. Always verify
sources and avoid suspicious links or calls.
• Report fraud immediately to your bank, change passwords, monitor accounts and follow
RBI guidelines for consumer protection.

Exercises
Match the following
Ramesh charges his phone at a public kiosk and later
i. Phishing links a. notices that his banking app was compromised.

Fraud using online Meena gets a call saying she won a prize and is
ii. b.
marketplaces asked to share an OTP to claim it.

Lalita scans a QR code sent by a buyer and unknowingly

iii. OTP based frauds c. transfers money instead of receiving payment.

Ravi receives an SMS asking him to update his bank

iv. Vishing calls d.
details via a suspicious link.

Suman tries to buy second-hand furniture online but

v. Juice jacking e. never receives the items after payment.

Scam through QR A caller pretends to be from a government office

vi. f.
code scan and asks for Aadhaar details for verification.

True or false
i. Sharing your OTP with someone who claims to be from your bank is a safe practice.
ii. A website that starts with “[Link] is safe and secure for entering personal information.
iii. Enabling two-factor authentication (2FA) on your accounts provides an extra layer of security.
iv. A caller asking for your Aadhaar or banking details over the phone is likely engaging in
vishing fraud.
v. Only sharing personal information on social media platforms is safe as long as it is with friends.
vi. It is a good practice to monitor your account statements regularly for any unauthorised
transactions.

Read the following case scenarios and suggest suitable action plans:
Deepak receives a phone call from someone claiming to be from his bank. The caller asks for his
account number and mentions a problem with his account that needs immediate attention.
While shopping at a local market, Mohit sees a sign with a QR code that promises a discount. He
scans the code but is taken to a suspicious website asking for personal information.
Priya finds a beautiful dress at a price that is too good to be true on a lesser-known online
shopping site. After adding it to her cart, she feels uncertain about making the payment.
Amit receives a message on social media from someone pretending to be his cousin, asking for
urgent money due to a family emergency.

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References
1
[Link]
2
[Link]
3
[Link]
4
[Link]
5
[Link]

64
10. Planning for the future
Learning objective: This chapter explores the importance of setting financial goals early on,
ensuring effective financial planning across various life stages, such as school, college,
marriage and retirement.

The following topics shall be discussed in this chapter:

• Importance of setting financial goals early

Financial goals across • Habits for making wise money choices
life's stages • Financial planning life cycle

Setting financial goals – early planning

Setting financial goals is essential for making informed financial decisions and preparing for the
future. Below are three categories of financial goals:

Short-term Medium-term Long-term

Achievable within Achievable within one Achievable in five
a year to five years years or more
Examples - saving for an Examples - saving for Examples - saving for
emergency fund, saving higher education, starting retirement, buying a
for a holiday a business house

Setting financial goals early

Helps in prioritising spending, ensuring enough savings
for major life events such as starting a family
Aids in strategic investment decisions, maximising the
growth of savings over time
Provides a financial buffer against unexpected
challenges, allowing to adapt to changing
circumstances

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Developing smart financial habits
Effective finance management goes beyond mere saving and budgeting; it involves cultivating
habits that enable wise financial choices. Here are several essential strategies to help you
gain mastery over your finances. This serves as a summary of all the chapters that we have
read till now:

Understand Track your

Set clear goals
your finances money

Save and Spend wisely Prepare for

cut costs emergencies

Explore savings Understand Differentiate

options investing good vs. bad
debts

Plan for Plan for the Keep learning

retirement future

Story time!
In a bustling Indian city lived Raj, a 7th standard student full of
energy, dreams and a love for gadgets. During a school seminar on
money management, a guest speaker highlighted the importance
of setting financial goals early. Raj was intrigued.

Excited, Raj shared his newfound knowledge with his supportive

parents, who helped him set goals: buying a new laptop for coding,
studying abroad and purchasing a bigger home someday.

Raj's first short-term goal was to save for a new laptop. He planned
to save a part of his allowance each month and reduce unnecessary
spending. His parents agreed to match his savings if he adhered to
his plan. For six months, Raj diligently saved, even earning extra
money by tutoring. He not only reached his goal but also had extra
money.

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 Next, Raj aimed to save for studying abroad. He researched
scholarships and part-time jobs, eventually securing a partial
scholarship and saving enough to cover the rest of his
expenses. Applying his lessons on saving and budgeting,
Raj avoided unnecessary debt and invested in technical
courses to enhance his skills. Years later, he returned as a
successful software engineer, volunteering at local schools
to share his story.

Raj's journey inspired young minds citywide, showing them

that with clear goals and hard work, they could achieve their
dreams too. Learning about financial planning in high school
set Raj on the path to a bright future, encouraging others to
take the first step towards financial responsibility.

Financial literacy across life stages

Financial literacy is important throughout our lives. From childhood to retirement, each phase
presents unique financial challenges and opportunities.
For young adults, managing college debt and starting a career are key concerns
Adulthood involves starting a family, raising children, taking care of your parents and
preparing for retirement
In retirement, the focus is mainly on managing income and healthcare expenses

67
In this section, we will explore the impact of financial knowledge on various age groups and
highlight key money management skills needed at every stage of life1.

Teenage years Young adulthood Starting a

(13-17) (18-25) family (26-45)

• Budget, save, avoid debt • Start a business or a job • Budget for bigger goals –
• Build good financial habits early • Build good credit score and save home, family and children
for emergencies • Your parents are ageing at this
• Understand various investment stage of your life and may
avenues (mutual funds, fixed become your dependents.
deposits) and choose which Consider their healthcare and
suits you the best financial needs in your
• Begin planning for long-term planning.
goals • Understanding the importance
of health and life insurance,
Early financial habits lead to Unlock your dreams with strong exploring long-term investing
wealth and stability! credit and smart savings! options, such as SIPs for
children’s education and
building an emergency fund to
cover unexpected expenses is
vital.

Budget today for a

secure tomorrow!

Successful retirement (65+) Planning to retire (46-64)

• Utilise your savings and investments wisely • Maximise savings for retirement
• Secure lasting funds with a smart withdrawal plan • Match investments to retirement goals
• Understand the possibility of increasing healthcare • Understand different retirement accounts (PPF, NPS)
costs and insurance options and how to maximise savings
• Know the basics of wills and passing on assets to heirs • Strategise for paying off debt before retirement
(succession planning)

Withdraw wisely to preserve for your old age! Power up your savings, adjust investments!

Heard of succession planning?

Succession planning means preparing for what will happen to your belongings and responsibili-
ties when you are no longer able to manage them, whether due to passing away or becoming
unable to make decisions. It ensures that your wishes are followed and that your loved ones are
taken care of.

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Here are some key elements:

Creating a will: Write a document explaining how your money, property and belongings should
be shared after your death.
Choosing executors: Pick trusted people to manage your assets and follow your wishes.
Adding a nominee: Name someone to receive specific assets, such as bank accounts or
insurance without legal delays, ensuring all their details, such as name, age and other
information, are accurate.
Discussing wishes: Talk with family about how you want your things handled and your care
preferences if you cannot decide.
Planning for healthcare: Choose someone to make medical decisions for you, if you are
unable to do so.

Succession planning ensures peace in the family, prevents arguments about who gets what and
ensures that your family is financially secure after your demise.

Summary
• Early financial goal setting is essential for stability, discipline in saving, strategic
investments and readiness for life events and surprises.
• Smart financial habits include understanding finances, setting clear goals, tracking
income and expenses, prioritising needs and making wise spending choices.
• Financial literacy addresses various money management challenges across life stages,
ensuring long-term financial security.

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Exercises

True or false
i. Setting financial goals only involves long-term planning.
ii. Financial literacy is crucial only during young adulthood.
iii. Successful retirement requires careful management of savings and investments.
iv. Tracking income and expenses is a key financial habit.
v. Retirement planning should begin as early as possible.
vi. Short-term financial goals include saving for retirement.

Match the financial strategy with its correct description

i. Teenage years (13-17) a. Maximise savings and align investments

with retirement goals

ii. Young adulthood (18-25) b. Budget for big goals such as a home

iii. Starting a family (26-45) c. Build good habits for financial stability

iv. Planning to retire (46-64) d. Save for emergencies and build credit

v. Successful retirement (65+) e. Utilise savings and investments wisely

Activity
Readers should list one or two short-term, midterm and long-term goals on their worksheets,
explaining the importance of each goal and outlining their plans for achieving them.

No. Goal Importance (why?) Plan to achieve

Short-term

Medium-term

Long-term

References
1
[Link]

70
Answers
Chapter 1
Fill in the blanks Choose the correct answer Crossword puzzle
i. Financial literacy i. b 1 Down. Medium of exchange
ii. Online ii. a 2 Across. Barter
iii. Swiss Franc iii. c 3 Down. Digital
iv. Paper iv. a 4 Across. Economic
v. Chinese Yuan/Renminbi 5 Across. Yen
6 Across. China

Chapter 2
Fill in the blanks True or false
i. Food i. False
ii. Entrepreneurship ii. False
iii. Skills iii. False
iv. Income iv. True
v. Routine v. True
vi. Digital vi. False

Chapter 3
Choose the correct answer True or false
i. d i. False
ii. b ii. True
iii. b iii. True
iv. c iv. True
v. b v. True
vi. a vi. False

Jumbled words
i. Savings – A reserved portion of your income for future use

ii. Budgeting - Planning how to spend and save your money

iii. Emergency funds - Money saved for unexpected expenses such as medical bills

iv. Financial discipline - The habit of controlling your spending and saving money wisely

v. Wants - Non-essential items that improve life but are not necessary.

vi. Savings account - A bank account where you keep money and earn interest over time

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Chapter 4
Fill in the blanks Match the following Answer briefly
i. Governments i. e i. Saving involves low risk and small returns for
ii. Fund manager ii. f short-term goals, while investing carries higher risk
with potential for greater long-term gains.
iii. Investing iii. d
iv. Mutual fund iv. b ii. A mutual fund pools money from multiple investors,
managed by professionals to invest in a diversified
v. Diversification v. a range of assets, with returns shared based on
vi. Risk vi. c contributions.

iii. Higher returns often mean higher risk due to

investment uncertainty, where potential gains come
with the chance of losses.

Chapter 5
Choose the correct answer True or false
i. c i. True
ii. a ii. True
iii. b iii. False
iv. b iv. True
v. False
vi. False

Chapter 6
Answer in brief
a. Debt is money borrowed with the agreement to repay it later, typically with interest, used to finance purchases
or expenses beyond one's current financial resources.
b. Borrowing money from a friend is informal and based on trust, with no formal terms such as interest or specific
repayment plans. Taking a loan from a bank is formal. It involves paying interest and has clear repayment
schedules, often backed by collateral.

c. • To finance planned long-term purchases such as a house, vehicle or education.

• To cover unexpected expenses or emergencies when personal savings are insufficient.
d. Good debt involves borrowing for items that increase in value or offer long-term benefits, such as education or
a home. Bad debt, on the other hand, involves borrowing for unnecessary items or those that quickly lose
value, such as using credit cards for luxury purchases.
e. Managing debt responsibly ensures financial stability, maintains a good credit score, reduces stress and allows
easier access to future loans for investments.

Analyse the spending given in the table. Determine the type of the spend using the
options given in the box.
a) Good debt and responsible purchase e) Responsible purchase

b) Good debt and responsible purchase f) Bad debt and impulsive purchase

c) Responsible purchase g) Responsible purchase

d) Bad debt h) Responsible purchase

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Chapter 7
Fill in the blanks True or false
i. Monetary i. True
ii. Public sector ii. False
iii. Saving iii. True
iv. Withdraw iv. False
v. Principal v. True
vi. Regional rural banks vi. True

Chapter 8
Jumbled words Match the following
i. Insured i. d
ii. Premium ii. c
iii. Claim iii. a
iv. Coverage iv. b

Chapter 9
Match the following True or false Case scenarios
i. d i. False i. Deepak should hang up and verify with his bank directly.
ii. e ii. False ii. Mohit should avoid entering personal info and report the
iii. b iii. True suspicious website.

iv. f iv. True iii. Priya should research the site’s legitimacy before making
a payment.
v. a v. False
iv. Amit should verify the request by contacting his cousin
vi. c vi. True directly.

Chapter 10
True or false Match the following
i. False i. c
ii. False ii. d
iii. True
iii. b
iv. True
iv. a
v. True
vi. False v. e

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