Finance For Everyone

SKILL ENHANCEMEN COURSE - SEC

Unit – 1 ( chapter – 1 )

SOL – DU According to new education policy

University Of Delhi

Commerce

Finance For Everyone

Unit-1 / Lesson-1
Contents:
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 Financial Literacy: Meaning and Definition

{1} Do you sometimes face shortage of funds at the end of every month
or are not able to buy the things you really want due to shortage of funds.
Answer to these questions requires knowledge of financial activities.

{2} Financial literacy is the ability to understand and effectively use

various financial skills including personal financial management,
budgeting, and investing.
{3} The meaning of financial literacy is the foundation of your
relationship with money, and it is a lifelong journey of learning.
{4} We should know how to balance our incomes and expenses.
financial literacy is an essential skill to have.
{5} Financial literacy gives many people a feeling of empowerment
and can enhance their quality of life.
{6} Financial literacy introduced over 400 years ago, the term
“financial literacy" has been bandied around for years in a variety of
industries without having a Clear definition in academics.
{7} The working definition provided by the Organization for
Economic Cooperation and Development (OECD) has gained
widespread acceptance among experts.
{9} financial literacy include knowing how to create a budget, plan
for retirement, manage debt, and track personal spending.
{10} The financial literacy definition developed by the National
Financial Educators Council: “Possessing the skills and knowledge
on financial matters to confidently take effective action that best
fulfills an individual’s personal, family and global community goals”.

Effects of financial literacy on our life:

● Recognize your income and expenses: Making a budget is a crucial step in

developing financial literacy Once we have established a budget, we can
monitor our spending and recheck it on a regular basis.
● Pay off debt and stay out of debt: When comparing loan terms, looking for
the lowest interest rates can result in significant long-term savings, as can
paying off full credit card balances in each month to avoid interest costs.
● Avoid going into debt or declaring bankruptcy: Establishing an emergency
savings account is a critical step in preventing debt from accumulating. Make
a plan for regular savings and day to day expenses. Reduce unnecessary
expenses and put your savings into a separate account. Try to save money to
buy required things. Spend on things you need, but wisely.
● Strive for a safe retirement: Through Financial literacy we have a better
sense of how much to save, what kind of retirement we want, and how to get
there
● Learn the value of saving :Regular savings are a cushion for emergency
conditions. For regular savings we can opt compulsory saving schemes such
as Recurring Deposit, Systematic Investment Plan (SIP) etc.
● Financially literate persons are less likely to fall victim to financial fraud.
 Benefits of financial Literacy

{1} Gives More Self-Assurance While Making Financial Decisions. We are more
prone to depend on others to make decisions for us when we are oblivious to
our financial options. When picking a location for winter, spring, or summer
break, that can be acceptable. But when it comes to making important
financial choices in life being aware of all of the alternatives provides the
assurance to go with what's best available.

{2} Gives the Ability to Bargain. We may express our expectations more
effectively if we are financially literate. Our ability to negotiate for the best
alternative will significantly improve the better informed we are, whether
it's negotiating down interest rates on money we borrow or bringing up the
goals we have for the money we invest.
{3} Makes it Easier to Defend Yourself. The more we know about identity
theft and internet scams, the better equipped we'll be to guard against
becoming a victim of financial fraud.

{4}Increases Our Likelihood of Reaching Our Objectives. Setting financial

objectives is one thing. However, when it comes to turning our financial
aspirations into reality, having a greater understanding of what it takes to
achieve those goals can make all the difference.

{5} Offers a Higher Standard of Living All Around. Understanding our finances
helps us achieve more while reducing stress .The most financially literate
persons seem to be among the best earners. People who had financial advisors
also had higher levels of financial literacy.
 Scope of Financial Literacy

❖ Understanding fundamental financial concepts and having the knowledge

and skills necessary to make wise financial planning decisions based on
the resources.

❖ It involves understanding how to make, use, invest, and save money.

❖ It is the capacity to effectively manage your money by utilizing the

financial tools and resources.
 Scope of Financial Literacy
❖ Financial literacy can refer to a variety of abilities, but some common
examples include creating a household budget, understanding how to
manage and pay off debts, and weighing the pros and cons of various credit
and investment options.

❖ These abilities frequently call for at least a basic understanding of important

financial ideas like compound interest and the time worth of money.

❖ The significance of other goods has also increased, including mortgages,

student loans, health insurance, and self-directed investment accounts.

❖ People now need to be aware of how to utilize them more responsibly much
more than before.
 Components of Financial Literacy

Budgeting Investing

DEBT savings
 Components of Financial Literacy

Budgeting
❑Budgeting is the process of creating a plan to spend your money. This spending plan
is called a budget.
❑Budgeting is simply balancing your expenses with your income.
❑This is how to increase your savings By finding the right balance between the
fundamental uses of money
❑An example of a budget for a salaried employee earning a salary of Rs. 1,00,000 per
month can be drawn as follows:
 Debt

➢Debt is something, usually money, owed by one party to another.

➢Debt comprises numerous borrowing practices, including bank loans and
credit card
➢every debt is a bad debt ,one must be aware of the distinction between bad
and good debt.
➢Borrowing money for necessities of daily living is considered good debt and
can cover things like funding one's education, getting a house, or an
automobile.
➢obtaining credit to cover unnecessary costs, such as the purchase of luxury
items by using credit cards is termed as poor credit
➢Avoiding excessive spending will prevent you from falling into a financial
trap . one should always make an effort to avoid collecting bad debts.
savings

❑Saving is the portion of income not spent on current expenditures. In other

words, it is the money set aside for future use and not spent immediately.
❑Financial well-being and future security are all a result of saving.
❑Keeping track of one's expenditures will enable one to save money, and
healthy/strong saving habits .
❑It will help to accomplish a number of tasks, such as reaching financial
objectives, developing financial discipline, and setting up an emergency
fund.
Investing

➢ With investing we can direct our funds toward certain

financial instruments rather than leaving money idle in the
bank account

❑Investing can assist in creating and increasing wealth for future security
and happiness.
❑By investing, we can allocate certain funds and also achieve our financial
objectives of post retirement life.
❑Some of the popular investment instruments are debts,stocks, homes,
mutual funds, equity linked saving schemes and gold.
Prerequisites of Financial Literacy

Level of Education

Numerical and Communication Ability

 Level of Education
Deposited funds
❑ Opening a bank account is the first step in gaining financial knowledge
❑ Set up a direct deposit as soon as one receives a paycheck.
❑ This keeps the money safe and helps us from having to pay interest to
cash advance businesses that take a cut of your check as payment.
Budgeting
❑The knowledge of budget is one of the initial components of a good personal
finance strategy.
❑We must examine our spending patterns and make changes as per budgeting
if required.
❑We control our money rather than money controls us.
❑Start saving habits to keep finances stable and your mind at ease.
 Level of Education
Investing
➢People who want to learn about finances should educate themselves on key
elements of investing.
➢Investors should educate themselves on a variety of topics to ensure lucrative
investments, including interest rates, price ranges, diversification,
risk-reduction strategies, and indices.
Taxation
➢Taxation is a term for when a taxing authority, usually a government, levies or
imposes a financial obligation on its citizens or residents.
➢Understanding the various tax systems and how they affect a person's net
income is a requirement for financial literacy.
➢By effectively managing income, it is possible to improve financial performance
and economic stability.
 Level of Education
Borrowing
❖To take money from a bank or other financial organization and pay it back
Most people will at some point in their lives need to borrow money.
❖To ensure that borrowing is done effectively, it is crucial to comprehend
interest rates, compound interest, the time value of money, payment terms,
and loan arrangements.
Financial Management
❑Financial management is strategic planning, organizing, directing, and
controlling of financial activities.
❑Clearly stated in a successful budget strategy are:
● How to stick to a monthly budget.
● How to cut your monthly expenditures.
 Financial Management
● How to deal with accumulated debt .
● How to tell the difference between short-, medium-,
and long-term objectives.
● A breakdown of household requirements
❑The core areas of managing personal finance include income, spending,
savings, investments, and protection
❑Smart personal finance involves developing strategies that include budgeting,
creating an emergency fund, paying off debt, using credit cards wisely, saving
for retirement, and much more.
❑Personal finance is about meeting your personal financial goals. These goals
could be anything—having enough for short-term financial needs, planning for
retirement, or saving for your child’s college education.
 Communication and Numerical Skills

Learn about financial issues

❖Reading about investing, money management, and finances is a good place
to start if one wants to start increasing financial literacy.
❖Start by reading periodicals and newspapers or look for books that include
financial literacy.
❖We might also wish to explore financial literacy tools online, including
webinars and podcasts.
Employ tools for financial management
❖Using a financial management tool is a crucial next step in developing
financial literacy.
❖To keep track of expenditures, there are numerous services available
online that one can quickly link to checking and savings accounts.
 Communication and Numerical Skills

Ask for Guidance

➢Any queries regarding how to manage any high-interest credit cards and
other debt can be addressed by a financial expert.
➢They can assess the particular circumstances and offer suggestions on how
to manage money and consolidate the debt payments.
Employ Available Networks
➢While there are several resources available to assist one to increase
financial literacy, start by looking in our own close-knit circle.
➢We may have close friends, relatives, or a CPA who can provide advice or
insight on how to advance financial literacy.
 Communication and Numerical Skills

Budget Knowledge
❖ A crucial part of financial knowledge is budgeting.
❖ We can reduce or eliminate our debt ,save money, and make plans for
the future by learning to make and stick to a budget.
Manage Checking and Savings Accounts

❖Another crucial step in developing financial literacy is opening and

maintaining a bank and savings account.
❖These accounts will make it easy to pay expenses and keep money safe. In
order to prevent overdraft fees, it's also crucial to learn how to manage
the account.
 Communication and Numerical Skills

Manage Checking and Savings Accounts

❑Another crucial step in developing financial literacy is opening and
maintaining a bank and savings account.
❑These accounts will make it easy to pay expenses and keep money safe.
Learn Debt and Loans
❑ Another crucial component of financial literacy is understanding loans
and debt.
❑ Learning about the various debt types, the solutions for each, and what
one should concentrate on paying down first should be a top priority
because not all debt is made equal.
 Communication and Numerical Skills

Recognize the Threat of Identity Theft

❑When someone commits fraud using another person’s personal information
without consent, this is known as identity theft.
❑Details such as name, credit card information, Social Security number, or
other details relating to an individual identification might be used.
❑Learning how to protect our personal information is the greatest approach to
avoid identity theft.

End
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