FINANCIAL EDUCATION FOR CHILDREN

PROJECT YISI
YOUNG INVESTOR, SMART INVESTOR
LEARNING MATERIAL
MODULE – 1a
ECONOMICS, MONEY & FINANCE
Knowledge Partner

OSAT KNOWLEDGE PVT. LTD

Academic Year: 2025-26

 ECONOMICS, MONEY & FINANCE

Genesis of Money

Money in the form of a coin

(metal) or currency (paper)
The common questions about money:
is worthless or just a piece
a) What is Money? of metal or a piece of paper;
b) What is Earning? in its original form, it is
c) How do we Earn? valueless. However, the
d) Why do we Save? value of this metal or paper
e) Why do we Invest? comes from the “entity”
that provides an “identity”
and “value.” The Indian currency has the picture of Mahatma Gandhi and the signature
of the Governor of the Reserve Bank of India, which is endorsed (indemnified) by
mentioning “I Promise To Pay,” which offers value; otherwise, there would never be
any value for the currency. The value for money is defined by giving life to it based on
the strength of a country, as measured through how the economy is managed or
functioning.

Important currencies around the world

The Indian Rupee

The US Dollar
The British Pound Sterling (Currency and Coin)

Thailand Baht

Chinese Yuan

Japanese Yen
As can be observed on every currency displayed above, there are pictures of eminent
persons of the respective countries. The currencies endorsed by the Central Bank’s
Governor, backed by the respective Governments. Such endorsements and
government backing of the currencies give power to exchange and the power to buy.

In the olden days of issuing and using coins, the coins had pictures of animals, gods,
goddesses, kings, queens, and warriors that gave a distinct identity and acceptance.
The rulers of the kingdom gave unique identities to the coins and currencies that had
their stamp of authority. The citizens accepted them as a medium of exchange.

The first paper currency issued by the Song Dynasty of China

Coins made from Electrum, a blend of gold and silver; Lydian time (current
Turkey)

Interesting looking coins called “Varahas” from the Vijayanagara empire

 The highest denomination Indian currency note (demonetized in 1978)

The coins used in India till the 1990s

The exchange values of every currency are different. Some countries like the US, the
UK, Europe, Canada, Australia, Singapore, Malaysia, Thailand, China, Japan, among
others, command a higher exchange value in comparison with the Indian currency.
Developed nations command higher valuations due to their economic prowess.

The evolution of money

Money has a history of over 5000 years in different forms. The limitations of the Barter
System made way for the introduction of coins and currencies. Over the centuries, the
medium of exchange has evolved. Humans were found to be innovative with their
methods of exchange.

▪ Barter System (item-to-item/goods-to-goods exchange)

▪ Salt, Sea Shells
▪ Commodities (gold, silver, electrum (a blend of gold & silver), bronze)
 ▪ Coins (600 BCE; Before Christ Era)
▪ Paper Currency (1260 BCE)
▪ Mobile Currency; Digital Wallets (21st Century; UPI, Unified Payment Interface)
▪ Virtual Currency (2009; Bitcoins, Cryptocurrencies)

The evolution of money over time

Virtual
UPI or Money
Digital
Plastic Cards
(Credit Cards)

Metal & Paper

money

Barter

The latest medium of exchange that is making its presence felt is the Virtual Money,
or Bitcoin, or Cryptocurrency. Not many people yet understand how virtual money or
bitcoins work, but it surely is set to take the currency world (medium of exchange) by
storm soon. Let us wait for its evolution.

A few aspects of money:

▪ Money makes the world go around

▪ Money is a unit of account that provides a base for price or value
▪ Money is a medium of exchange
▪ Money can be stored, saved, and invested
▪ Money offers the power to buy
▪ Money helps in displaying human growth and wealth
▪ Money can be donated
▪ Money can be bequeathed
▪ But if not managed well, it can lead to chaos too
Let us consider this day-to-day family circumstance:

The mother calls for her son from the kitchen and says, “Kiran, go to the shop and
buy one litre of milk.”

No response from Kiran. Mother comes out from the kitchen, wiping her wet
hands, and sees Kiran playing in the living room. Mother shouts at Kiran now and
asks him sternly, “Kiran, why don’t you go and get some milk?”

Kiran responds uninterestingly, “Mom, I am playing now. I shall get the milk later.”

Mother calms down and tells Kiran, “My dear son, I will give you a chocolate if you
go and get milk.”

The moment Kiran heard the chocolate incentive, he threw his toy away, ran
towards his mother, and asked her, “Are you sure you will give me chocolate if I
get milk?”

Mother says, “Yes, of course. You get me the milk and I shall give you the
chocolate.”

Kiran runs to the shop, gets the milk, and gets his chocolate.

From the above story, it can be understood that everyone is motivated with some
“compensation” for what they do.

When we want something, let us say we want to buy bread because we are hungry,
there must be someone who has to prepare the bread. The bread maker does not give
bread unless he is compensated for the effort of making bread and making it available
for consumption. So, there has to be an “exchange” of “something” that benefits
both – the bread seeker and the bread maker. The “compensation” the “seeker” must
give to the “maker” can be called the “currency” or a “medium of exchange.”

Salary is the motivation to work; profit is the motivation to run a business; income is
the motivation to do a profession. Interestingly, when we drop some money into the
“hundi” or the “donation box” at a temple or a praying place, we presume that we are
“giving” something to God in exchange for His blessings! Hence, there is an “exchange
of something for something” based on which this world is functioning.

How to understand the significance of economic activity in simple terms? We all

live within the “fence” of the economy (of a country), facilitated by various systems and
processes that enable us to efficiently conduct our day-to-day work and activities.
Without formally acknowledging it, we get access to so many things daily. Everything
we get is part of the economic activity that enables people to lead a normal life.
First thing in the morning, we brush our teeth, which means the toothbrush and
toothpaste were made available to us (a company manufactured both). Next, we buy
milk for our daily cup of coffee or tea (milk, coffee powder, and tea leaves were
produced and manufactured by different companies). We call for an autorickshaw,
board a bus, a train, an airplane, and even travel in our two-wheelers or four-wheelers
to schools, colleges, and to work. We buy petrol/diesel at gas stations, we go to a
restaurant, we go to a supermarket and buy groceries and daily needs, we go to a
theatre, we eat ice cream, eat chocolate, go to an ATM and draw cash, seek loans from
banks, deposit money in a bank, receive money and pay money, buy gold and
jewellery, go to a hospital for healthcare and our activities are seamless and unlimited.
Imagine all the activities we do regularly, and we find the answer to the question of
what “economic activity” is all about.

When we get everything on demand, we are leading a life that gives us comfort and
happiness, which means the economy around us has facilitated all of these for us.
Some entrepreneurs took risks by starting various businesses, which the government
facilitated with capital and related facilities. Many people get employment, and
products and services are produced/manufactured that are consumed by us. The
toothpaste on our toothbrushes has a history of how it came onto our hands,
how the petrol and diesel came to the gas station, and how a medicine was
manufactured that cures various illnesses; we book an autorickshaw or a taxi
ignoring that some entrepreneur manufactured the automobile; we travel by
buses, trains, and airplanes ignoring the companies that manufactured them; we
der food and groceries that some companies deliver and so on; we must respect
the economy that makes our lives smooth.

What do the common people expect from the government? The

government’s responsibility is to give people employment on demand
(based on qualifications and skills), empower entrepreneurial aspirations;
availability of funds/capital, a fair trade and business environment, proper
access to good health facilities, and good educational institutions that
enhance our skills, the money supply should be continuous, moderate or
affordable inflation, moderate or affordable interest rates, strong
regulatory environment, a wide range of investment options, gender
equality and diversity in jobs and remuneration, to feel and live safe as a
citizen, good infrastructure, justice is done without bias and the
government being transparent and accountable.
What are the government’s responsibilities and duties towards the citizens?
Every ship has a captain. Why? Because traveling in the oceans is not easy, the
journey is filled with uncertainties. There are passengers on the vessel who are
dependent on the captain and his crew to steer them safely and efficiently to their
destinations. Similarly, a country needs citizens who have a leader who can
manage the country's prospects deftly and efficiently. (Imagine a country like India
that has over 140 crore people who must be managed by providing comfort and
happiness.)

The people of the country elect a government to run an efficient economy that
allows people to lead comfortable lives. When we exercise our votes, we are
indirectly communicating to the government that we have done our job, and now
it is your turn to do your job.

The government as a facilitator

The government is a facilitator; the government's core economic responsibility is to

promote entrepreneurship and provide employment so that people have money to
spend, save, and invest by meeting their needs, wants, and aspirations. In this
endeavour, the government must ensure there is a conducive environment for
entrepreneurs to raise capital (funds) and get access to human resources (skilled
employees). To make available the required capital to start a business, the government
must create or mobilize money in abundance. To mobilize money, people must have
jobs because jobs lead to earning, spending, saving, and paying taxes. People will work,
earn, spend, and save for their future financial needs.

The first step of savings is to invest in banks by way of deposits; banks, in turn, utilize
the savings (deposits) to lend money (largely) to entrepreneurs as capital who aspire
to start businesses (common people too avail different types of loans which again is
facilitated by banks and financial institutions by way of mobilizing deposits/savings).
When a business is started, it leads to employment creation, and employment creation
again leads to people earning, spending, and saving. Even the taxes paid by people
are ploughed back into economic development. When more and more people get
employment, more and more savings get mobilized, which further leads to promoting
more entrepreneurship. When there is more employment, more people will have
earning capacity, leading them to spend more, save more, and the money starts
circulating within the economic system relentlessly.
 Why do we pay taxes?

Let's examine these pictures with some key figures.

The government conducts the Annual Budget (also known as the Union Budget) every
year on February 1; the annual budget accounts for the expenditure to be incurred in
running the country and the income it earns to meet these expenditures. India, being
a growing economy, expenditure exceeds its income, leading to a deficit budget
(termed Fiscal Deficit). From the above pictures, it can be observed that the
government for the financial year 2025-26 needs approx. Rs.50.65 lakh crore
(Rs.50,65,00,000,00,00,000, this is how much in figures!!) to spend, but can collect
approx. Rs.34 lakh crore, leaving a gap of over Rs.15 lakh crore (deficit amount).

Of course, the government collects a large part of the money through taxes to run the
country (direct and indirect taxes), but this is not enough. It is a different matter that
most people (in every country, perhaps) hate paying taxes to the government. People
think that they have worked hard, and earned some money as compensation, hence
have the right to spend all the money they earned at their will; I earned Rs.100 and I
will spend Rs.100; why should I give any part of “my” earning to anyone, even if it is to
the government, this is the common question. An angry question, actually.
 Who pays salaries to the soldiers protecting our
country?
Okay, let us say all citizens decide not to pay taxes, what
would happen? As a citizen of this country, everyone should
be aware that there are over 15 lakh soldiers working day
and night protecting the Motherland in extreme
circumstances (the weather in one of the Indian borders,
Siachen, drops to below 50 degrees and there are thousands
of soldiers manning this territory). These soldiers are not
employees of a profit-making organization but work for the
government with the responsibility of protecting the land,
air, and water territories of the country. How will their
salaries be paid? If you say that the government will pay,
how does the government earn money to pay their salaries?
The answer is what you are thinking – yes, their salaries are
paid from the taxes collected from the people.

When there is a natural calamity, many people die, and many lose their families, assets,
and livelihoods, for which the government offers a financial grant that runs into several
thousand crores. A segment of people (called the Weaker Section or Marginalized)
require subsidies for buying basic things such as gas, rice, wheat, cooking oil, and so
on; they cannot afford to pay to buy them. There are so many poor people in the
country who need financial support to live and lead independent lives. The
government has to subsidize the prices, taking the cost on its head. The government
buys defence equipment and ammunition as part of the country’s safety and security.
How can all these people be financially supported? The government has to borrow
money, considering the number of taxpayers is limited, but must spend for everyone
(spend for non-taxpayers too), and the government must pay interest on such
borrowings. From where will the government pay the interest?

Further, we demand good roads and infrastructure; we need the police to take care of
the law and order. In India, the expenditure to run the country exceeds the income
earned through tax collection because many people do not come under the taxable
bracket and many evade taxes. This deficit (termed as “fiscal deficit’) leads the
government to borrow huge funds from various sources, for which interest has to be
paid.

So, asking why taxes must be paid is not the right question. Unless taxes are not paid,
the government cannot meet the expenses, and if the government does not spend
then the economy will not grow; the economy cripples.
 What are Direct and Indirect taxes?

Taxes collected by the government are of two types – Direct Taxes

and Indirect taxes. Direct Taxes are those that are collected on the
income earned by people, such as income from salary, income from
business and profession, rental income, interest and dividend
income, and income from other sources. Further, when we buy and
sell property, buy and sell shares, mutual funds, gold, silver, and so
on, the gains are treated as income on which taxes are applicable at
prescribed rate slabs. The Indirect Taxes are collected on non-
income categories such as purchases of goods and availing of
services. The indirect taxes are termed Goods and Services Tax or
GST.

The following table offers an understanding of direct and indirect taxes:

Direct Taxes Indirect Taxes

Salary Income Purchase of any goods
Consumption such as eating, drinking
Business Income
(at restaurants etc.)
Professional Income Groceries
Services rendered (training,
Rental Income
consultancy, brokerage, commission)

Interest Income Services (taxi, train, bus, air tickets)

Life and General Insurance policies
Dividend Income
purchased
On computers, laptops, electrical, and
Income from the sale of real estate
electronic items

Income from the sale of Purchase of automobile (four-wheeler,

stocks/mutual funds two-wheeler, commercial vehicles)

Income from selling precious metal Purchase of precious metal (in

(gold, silver, jewellery) different forms)
Gift and Wealth Tax Certain healthcare services
Income from lottery Certain medicines

Direct taxes are either deducted at the time of making the payment to the receiver or
the receiver can pay the tax at the time of filing the annual income tax returns.
Indirect taxes are collected at the time of purchase and sale. The buyer pays the GST
(Goods and Services Tax) to the seller based on the bill or invoice at the applicable
rates. The GST rates differ for different goods and services. Essential goods and services
are charged low GST, while luxury goods and services are charged at higher rates. The
seller (the one who raises the invoice) has to remit the collected GST to the government
every month. Evading taxes or non-remittance to the government is a punishable
offense.

How does the government manage the fiscal deficit?

The government borrows the funds utilizing the services of the Reserve Bank of India,
which is the banker to the government. The RBI issues short-term Treasury Bills and
long-term Government Securities regularly (through a predefined borrowing
calendar), borrows money, pays interest, and repays on maturity. Government
securities are treated as “sovereign” instruments (utmost or unquestionable safety).

Who lends money to the government?

Common people help the government (the economic system) to mobilize savings
through many ways; a few methods are discussed below:

▪ When we purchase traditional life insurance policies and pay the premiums, a
large portion of the premiums collected by the insurance companies is invested
in government securities
▪ Salaried individuals save a portion of their salaries in a provident fund
(Employee Provident Fund or EPF), which is invested in such securities.
▪ When we save our money in post office savings instruments, we are indirectly
lending money to the government (or helping the government to mobilize our
savings)
▪ We invest in debt mutual funds, where our money is invested by mutual fund
companies in government securities of various maturities (short-term and long-
term borrowing instruments)
▪ From time to time, the Reserve Bank of India issues government-backed long-
term securities exclusively for common citizens, which are again borrowing
instruments of the government

Apart from mobilizing savings from common citizens, domestic financial institutions,
foreign financial institutions, and banks are the other large investors in government
securities.

The government mobilizes savings (the shortfall as part of the fiscal deficit) from the
citizens through various ways, for which creating employment and enabling earning
are critical as part of the government’s responsibility. If people do not earn, they
cannot save, and if they cannot save, the government does not get the funds, and if
the government does not get the funds, the economy does not grow. All these are
interconnected.

This is the real sequence of the economic activity

4.
3. Employment Empowers
creation Earning

5.
2. Promotes
Encourages
entrepreurship
Saving

1. Government

Understanding the above graph: The government encourages entrepreneurship,

which leads to employment creation; employment leads to earning; earning leads to
spending and saving; what is saved is invested in various instruments; what is invested
is again mobilized through various instruments.

Where do people typically save/invest (financial assets)?

Banks (deposits) Bonds

Post Office Savings Debentures

Provident Fund (salary deduction) Private/Corporate Deposits

National Pension Scheme (NPS; anyone
can invest; salaried and earning from Government-backed securities
business, profession, and other means)
Life Insurance Policies (with investment
Stocks
component)
Pension Plans Mutual Funds
The government offers various savings and investing options for the common people,
which are mobilized and the money circulates within the economy (we shall discuss
about the investment options in the subsequent modules).

What other factors define an economy? A stable

government, a strong regulatory environment, peak
utilization of available resources, continuous and
seamless money supply (termed liquidity), good
institutional structure, providing education and skills,
moderate inflation (affordable to buy/spend), ample
purchasing power, affordable borrowing rates,
conducive entrepreneurial environment (encouraging
new and existing businesses), employment
opportunities, a wide range of saving and investment
options, consumption-driven environment.
 GIST OF THE MODULE

The above module is focused on teaching children the fundamentals of

economics, money, and finance, including the history and significance of money,
earning, saving, and investing.

Genesis of Money and Its Value

Money, in its physical form, is inherently valueless; it’s worth is derived from the
authority and identity provided by governments. The backing of currencies by
central banks and the historical evolution of money highlights its significance in
economic transactions.

• Money is a medium of exchange, unit of account, and store of value.

• Important currencies include the Indian Rupee, US Dollar, British Pound, and
others.
• Historical forms of money include coins, paper currency, and modern digital
currencies.
• The value of money is influenced by a country's economic strength and
governance.

Evolution of Money Over Time

The concept of money has evolved over 5,000 years, transitioning from barter
systems to modern digital currencies. This evolution reflects human innovation in
facilitating trade and economic activity.

• Barter system was the earliest form of exchange.

• Transitioned to commodities like gold and silver, then to coins and paper
currency.
• Current forms include digital wallets and cryptocurrencies like Bitcoin.
• Each evolution aimed to address the limitations of previous systems.

Economic Activity and Its Importance

Economic activity encompasses the daily transactions and services that facilitate
a comfortable life for citizens. It is essential for understanding how goods and
services are produced, distributed, and consumed.

• Economic activity includes daily tasks like buying groceries, commuting, and
accessing services.
• Entrepreneurs play a crucial role in creating jobs and driving economic
growth.
 • The economy provides the infrastructure and services that enhance quality
of life.

Government's Role in the Economy

The government acts as a facilitator in the economy, promoting entrepreneurship

and ensuring employment. Its responsibilities include creating a conducive
environment for business and managing public resources effectively.

• The government is responsible for job creation and economic stability.

• It mobilizes funds through taxes and ensures a fair-trade environment.
• Citizens expect transparency, accountability, and good governance from
their leaders.

Understanding Taxes and Their Necessity

Taxes are essential for funding government operations and public services, despite
common resentment towards them. They enable the government to support
defence, infrastructure, and social welfare programs.

• Taxes are categorized into direct (income-based) and indirect (goods and
services).
• The government faces a fiscal deficit, needing approximately Rs. 50.65 lakh
crore for the financial year 2025-26.
• Tax revenues are crucial for paying salaries of public servants and funding
essential services.

Fiscal Deficit Management Strategies

The government manages fiscal deficits by borrowing funds and issuing securities.
This borrowing is necessary to cover the gap between income and expenditure.

• The Reserve Bank of India plays a key role in government borrowing.

• Government securities are considered safe investments for citizens and
institutions.
• Mobilizing savings from citizens is critical for funding government
operations.

Saving and Investment Options for Citizens

Citizens have various avenues for saving and investing, which contribute to the
economy's liquidity. These options help mobilize funds for government and
private sector initiatives.
• Common saving instruments include bank deposits, provident funds, and
life insurance policies.
• Investments in government securities and mutual funds are popular among
citizens.
• The government provides multiple options to encourage saving and
investment among the populace.