Financial Literacy
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Financial literacy
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Introduction to Financial Literacy
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Key Points:
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What is financial literacy?
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Importance of managing money effectively.
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How it impacts your life (budgeting, saving, and investing).
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Saving
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WHAT IS SAVING?
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Savings = income minus expenses
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No or very little income generated on savings
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Helps you during emergencies
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Budgeting helps cut down unwanted expenses and increase savings
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Expenses = income minus savings
Investment
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WHAT IS investment?
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Savings generating income
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Interest – amount charged for the period of borrowing
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Simple interest & compound interest
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Short-term / long-term
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LUMPSUM / REGULAR
Simple interest vs compound interest
Lumpsum investment of Rs.10,000 for 10 years at 10% p.a. interest
| Year | Simple Interest | Value at year end | Compound Interest | Value at year end |
| 1 | 1,000 | 11,000 | 1,000 | 11,000 |
| 2 | 1,000 | 12,000 | 1,100 | 12,100 |
| 3 | 1,000 | 13,000 | 1,210 | 13,310 |
| 4 | 1,000 | 14,000 | 1,331 | 14,641 |
| 5 | 1,000 | 15,000 | 1,464 | 16,105 |
| 6 | 1,000 | 16,000 | 1,611 | 17,716 |
| 7 | 1,000 | 17,000 | 1,772 | 19,487 |
| 8 | 1,000 | 18,000 | 1,949 | 21,436 |
| 9 | 1,000 | 19,000 | 2,144 | 23,579 |
| 10 | 1,000 | 20,000 | 2,358 | 25,937 |
Principles of investing
- Invest early – lumpsum investment
- Compounding works better if you start investing early and invest for a longer term
Principles of investing
- Invest early & regularly – regular investment
- Compounding works better if you start investing early and invest for a longer term
Principles of investing
- Invest early
- Compounding works better if you start investing early and invest for a longer term
| Particulars | A | B |
| Start Age | 25 | 35 |
| End Age | 55 | 55 |
| Investment per month | ₹ 3,500 | ₹ 7,000 |
| Rate of Return | 12% p.a. | 12% p.a. |
| Corpus accumulated | ₹ 1,07,83,406 | ₹ 64,39,001 |
Investment avenues
| Instrument | Risk | Return | Term | Duration | Avg expected return |
| Recurring Deposit / Fixed Deposit | Low | Low | Short term | Upto 3 years | 5.5-6% p.a. |
| Liquid / Ultra short term debt mutual funds | Low | Low | Short term | Upto 3 years | 5-7% p.a. |
| Equity Mutual Funds / ETFs | High | High | Long term | > 8 years | 12-15% p.a. |
| Equity Shares | High | High | Long term | > 8 years | 12-15% p.a. |