INCLUSION OF FINANCIAL LITERACY AS A PART OF CURRICULAM
AMOUNGST COLLEGE STUDENTS.
OBJECTIVES
1. To understand importance of financial literacy.
2. To find out the awareness of financial literacy among college students.
3. To analyse the hindrances found to include financial literacy as a part of
curriculum.
4. To provide suggestive measures.
INTRODUCTION
Financial Literacy
Financial literacy is critical because it equips us with the knowledge and skills, we need
to manage money effectively. It’s one thing that will impact almost every aspect of your
life, yet many people do not have the knowledge they should and even those who do
often don’t share it with their children.
The current pandemic is a generational event that has caused many to reflect on their
financial situation and look closely at their financial habits. According to a recent poll
conducted by the National Endowment for Financial Education (NEFE), 88% of
Americans say the COVID-19 crisis is causing stress in their personal finances. These
current obstacles create an opportunity for all of us to improve our financial
literacy. The greatest generation of savers this country has ever seen was a product of
the great depression. This is no coincidence. The great depression helped shape that
generation’s perspective on money. It created a desire for financial security. It created
a desire for financial literacy.
Financial literacy is the possession of the set of skills and knowledge that allows an
individual to make informed and effective decisions with all of their financial resources.
Raising interest in personal finance is now a focus of state-run programs in countries
including Australia, Canada, Japan, the United States, and the United Kingdom.
Understanding basic financial concepts allows people to know how to navigate in the
financial system. People with appropriate financial literacy training make better
financial decisions and manage money better than those without such training.
The Organization for Economic Co-operation and Development (OECD) started an
inter-governmental project in 2003 with the objective of providing ways to improve
financial education and literacy standards through the development of common
financial literacy principles. In March 2008, the OECD launched the International
Gateway for Financial Education, which aims to serve as a clearinghouse for financial
education programs, information and research worldwide. In the UK, the alternative
term "financial capability" is used by the state and its agencies: the Financial Services
Authority (FSA) in the UK started a national strategy on financial capability in 2003.
The US government established its Financial Literacy and Education Commission in
2003.
Financial literacy is the ability to make informed judgements and effective decisions
regarding the use and management of money. The pillars of financially literacy include:
1. Budgeting
Budgeting is the process of creating a plan to spend your money. This spending plan is
called a budget. Creating this spending plan allows you to determine in advance
whether you will have enough money to do the things you need to do or would like to
do. Since budgeting allows you to create a spending plan for your money, it ensures
that you will always have enough money for the things you need and the things that are
important to you. Following a budget or spending plan will also keep you out of debt
or help you work your way out of debt if you are currently in debt.
The essential features of a budget are:
1. Budget is a financial statement, but it can be statement of quantities also with
or without financial figures.
2. Budget is prepared for a specific period, and it is prepared generally before the
period begins.
3. Budget is a plan of the policy to be pursued during the budget period.
4. The purpose of the budget is to attain a given objective.
It is a tool of management for planning its future activities including estimate of sales,
expenditure production etc. It is done for indicating the expected results of the business
and the possible future line of action to be followed for the attainment of such results.
Expected results are projected in financial terms or in other numerical terms like units
of products, man hours, machine hours etc. Budgeting or Budget making may be
defined as “a forecast of programme of operations based on expected operating
efficiency.”
Budget should be based on estimated future requirement for a definite period of time.
It should be prepared by taking the help of previous statistical data. Thus, budgeting
can be defined “as forecasting and preplanning for the next period using past
experience, market trends and present position”.
Budget provides predetermined standard of performance for the guidance of the efforts
and activities in the business. As budgets provide standards of performance, they
usually become the basis for control.
Control used for the execution of budgets is what is called “budgetary control”. Thus
budgeting is concerned with the planning function of management, while “budgetary
control” involves the function of controlling in the organisation.
Budget as a Means for Planning, Coordination and Control:
Since planning is looking ahead and anticipate difficulties expected and their solution.
Budget plans and forecast the expenditure and performance as regards production,
sales, purchases, plant utilisation etc.
As coordination means weaving together the segments of the organisation so as to
operate at the most efficient level and produce maximum profit. This is achieved as all
the sections like sales, purchase, production, finance, personal etc. work together to
achieve common goals as defined in the budget.
Controlling means by systematic appraisal of results to ensure that actual and operations
coincide, and remedial actions are taken if there is any deviation. The budget means,
by which plans are regularly compared with actual results regarding expenses and
performances.
Objectives of Budget:
A system of budget is necessary to plan and control the activities pertaining to
production and sales.
The objectives of preparing a budget are as follows:
(i) To Formulate a Plan of Action:
The plan of action depends upon the policy that the business decides to execute.
(ii) To Facilitate Central Control:
Budget is a means for the top management to control the business operations centrally.
For the proper implementation of the policy and achieving the objectives, here is a need
for delegation of authority and responsibility to the executives, based on the blue-print
and directions required for execution. Budgets grow from below but are controlled from
above.
(iii) To Provide a Means of Co-Ordination:
Although different budgets may be prepared for different activities, e.g., raw material
budget, production budget, sale budget, etc., yet co-ordination between the different
activities is provided by the master budget.
Types of Budgets:
The following are the different types of budgets:
(i) Sale Budget:
In budgetary programme, sale is a starting point, as sales factor becomes the key factor
in the ordinary course in majority of cases.
According to W.W. Bigg, “This is probably the most important budget, as it is usually
the most difficult to forecast or attain.”
This budget is prepared by the sales manager.
The budget is prepared to show which finished products can be sold in what quantities
and at what prices. And it may be prepared (a) product-wise, (b) territory-wise (c)
customer-wise, (d) period-wise, etc.
The sale budget should show the following:
•
Sales estimate for the period;
•
Area-wise analysis of estimated sales;
•
The methods of increasing sales if the sales are shown decreased over
the past period; and
•
Cost of additional sales-promotion activities etc.
(ii) Production Budget:
It is based on sales budget, as it has to provide for the output needed to meet the
requirement of the sales budget. Production budget is prepared in two parts—one
showing the estimates in volume or quantities, and the other showing production costs.
It helps in the best utilisation of the business resources available for production,
reduction in production costs by eliminating wastage, etc.
(iii) Raw Material Budget:
Raw material budget is based upon production budget, as this budget provides for the
materials needed for production.
The budget is useful from the following points of view:
(i) It helps the purchase department in planning for the purchases.
(ii) It helps in fixing minimum, maximum and ordering limits of materials.
(iii) It helps to keep inventory under control.
(iv) Labour Budget:
It is also a part of production budget like raw material budget. The labour requirement
is first ascertained in terms of grades and trades of workers and their supply through
the personnel department. The labour budget should be prepared both for direct and
indirect labour.
(v) Overhead Budget:
This budget helps in the preparation of production budget. All the indirect expenses
pertaining to production, office and administration, selling and distribution are shown
separately under the budget and their information are collected from their concerned
departments.
(vi) Development and Research Budget:
This budget is a long-term budget prepared to meet the expanding needs of the business
and to keep in line with the latest developments and techniques of production.
(vii) Cash Budget:
Cash budget is based on cash forecasts or estimates which give information as to what
funds would be available at what times, and whether the funds so available would meet
the requirement of the time. So before preparing cash budget, a statement of cash
forecast should be prepared.
(viii) Master Budget:
A master budget is prepared for the business as a whole, combining all the budgets for
a period into this budget. In other words, a master budget is the co-ordinated and
summarised budget of the entire enterprise.
(ix) Fixed Budget:
Fixed budget is one which remains unchanged in spite of changes in volume of output
or level of capacity. This budget is prepared for a specific planned activity and it is not
adjusted to activity level attained.
(x) Flexible Budget:
Flexible budget is one which is prepared in such a manner as to facilitate determination
of the budgeted cost for any level of activities. It is also known as Variable Budget.
2. Savings
Saving is income not spent, or deferred consumption. Methods of saving include putting
money aside in, for example, a deposit account, a pension account, an investment fund,
or as cash. Saving also involves reducing expenditures, such as recurring costs. In terms
of personal finance, saving generally specifies low-risk preservation of money, as in a
deposit account, versus investment, wherein risk is a lot higher; in economics more
broadly, it refers to any income not used for immediate consumption. Saving does not
automatically include interest.
Saving differs from savings. The former refers to the act of not consuming one's assets,
whereas the latter refers to either multiple opportunities to reduce costs; or one's assets
in the form of cash. Saving refers to an activity occurring over time, a flow variable,
whereas savings refers to something that exists at any one time, a stock variable.
Importance of Saving Money:
Money is something very much valuable and required for the survival. It’s not just one
piece of paper but it holds some value, a value that has to be understood by every
individual. If we quote it into a particular definition then money is, “A measure of value,
medium of exchange and means of payment consisting of notes, coins and paperless
payment systems like smart cards.” It is not about some class of people but about
everyone, be it the lower class or the Richie rich. Money holds so much that we even
fail to anticipate. It holds power, ability to create jealousy, manipulation, greed and
what not.
Need of Saving Money
Money by far is the most necessary thing required after basic necessities i.e. food,
shelter and clothing. It is the fundamental requisite for a middle-class person to meet
his ends and for the higher class to get his luxurious demands fulfilled. The fact that
shouldn’t be forgotten is that that you need to save for future crisis, for the business
problems, for travel, for any sort of urgency, for fulfilling a long-cherished dream or
for anything. Money is a prized possession though it’s worth is subjective but anyhow
it is needed in every next step and for that you need to prioritize your needs and also
understand how much savings play an important role in securing future.
Importance of Saving Money
The time you spend your money you may forget your limits but you got to plan first
and be rational before you just give your money to something that is just as good as a
scrap. This is for a generation existing right now. We argue and claim that we
understand the worth of it but well we don’t. The day we start earning then maybe we
might turn out to be good savers. As we say we don’t understand things until we
ourselves face it. Besides this being secured by parents is great but depending on them
is not happening so we need to pour senses and start saving.
Saving maybe a tough task though but you can always have alternative plans like for
instance this is for someone who cannot keep cash on hand for long as he’s going to
spend it, then buy a piggy bank or get yourself one bank account. You can give it to
your parents or let’s just presume that you’ve good self control then you start saving
ten percent every month from your expenses. So this is how you manage your finances.
The old school generation or the one who are not the nineties kid then they very well
know the importance of saving and its perks. They have had grandfather or grandmother
who would have given better techniques for that. But we as in everyone not just one
particular age group; the ones who aren’t successful in saving we need to work from
scratch. We should start asking prices, compare them, stop running behind brands, go
for discounts and sale, use coupons, avoid spending on junk food and last but not the
least try bargaining even when we fail n number of times; surely, we will master that
art.
So well it definitely is important to save as crisis never come with alarms. There is a
crowd existing with a thought that we have one life so why think twice but well this
doesn’t hold true in case of money. You always should think twice before spending it.
It’s not about restricting yourself from living blissfully but prioritizing the needs. The
saved money may turn out to help you some day when it’s the vital need for your life
and then you would be thankful to yourselves. Obligations can help but being cautious
is more helpful.
3. Investment
An investment is an asset or item acquired with the goal of generating income or
appreciation. Appreciation refers to an increase in the value of an asset over time. When
an individual purchases a good as an investment, the intent is not to consume the good
but rather to use it in the future to create wealth. An investment always concerns the
outlay of some asset today—time, money, or effort—in hopes of a greater payoff in the
future than what was originally put in.
Types of Investments
Economic Investments
Within a country or a nation, economic growth is related to investments. When
companies and other entities engage in sound business investment practices, it typically
results in economic growth.
Investment Vehicles
An investment bank provides a variety of services to individuals and businesses,
including many services that are designed to assist individuals and businesses in the
process of increasing their wealth.
Investment banking may also refer to a specific division of banking related to the
creation of capital for other companies, governments, and other entities. Investment
banks underwrite new debt and equity securities for all types of corporations, aid in the
sale of securities, and help to facilitate mergers and acquisitions, reorganizations, and
broker trades for both institutions and private investors. Investment banks may also
provide guidance to companies who are considering issuing shares publicly for the first
time, such as with an initial public offering (IPO).
4. Managing Debt
Everyone with even a little bit of debt has to manage their debt. If you just have a little
debt, you have to keep up your payments and make sure it doesn’t get out of control.
On the other hand, when you have a large amount of debt, you have to put more effort
into paying off your debt while juggling payments on the debts you’re not currently
paying.
Ways to manage Debt
1. Know Who and How Much You Owe.
2. Pay Your Bills on Time Each Month.
3. Create a Monthly Bill Payment Calendar.
4. Make at Least the Minimum Payment.
5. Decide Which Debts to Pay off First.
6. Pay off Collections and Charge-Offs.
7. Use an Emergency Fund to Fall Back On.
8. Use a Monthly Budget to Plan Your Expenses.
9. Recognize the Signs That You Need Help.
Shares
Stocks are securities that represent an ownership share in a company. For companies,
issuing stock is a way to raise money to grow and invest in their business. For investors,
stocks are a way to grow their money and outpace inflation over time.
When you own stock in a company, you are called a shareholder because you share in
the company's profits.
Public companies sell their stock through a stock market exchange, like the Nasdaq or
the New York Stock Exchange. (Here's more about the basics of the stock market.)
Investors can then buy and sell these shares among themselves through stockbrokers.
The stock exchanges track the supply and demand of each company's stock, which
directly affects the stock's price.
Stock prices fluctuate throughout the day, but investors who own stock hope that over
time, the stock will increase in value. Not every company or stock does so, however:
Companies can lose value or go out of business completely. When that happens, stock
investors may lose all or part of their investment. That's why it's important for investors
to spread their money around, buying stock in many different companies rather
than focusing on just one.
If you have a 401(k), you probably already own stock, though you might not realize it.
Most employer-sponsored retirement plans invest in mutual funds, which can hold a
large number of company stocks pooled together.
National Stock Exchange (NSE)
National Stock Exchange of India Limited (NSE) is the leading stock exchange of
India, located in Mumbai, Maharashtra. NSE was established in 1992 as the first
dematerialized electronic exchange in the country. NSE was the first exchange in the
country to provide a modern, fully automated screen-based electronic trading system
which offered easy trading facilities to investors spread across the length and breadth
of the country. Vikram Limaye is Managing Director & Chief Executive Officer of
NSE.
National Stock Exchange has a total market capitalization of more than US$2.27
trillion, making it the world's 11th-largest stock exchange as of April 2018. NSE's
flagship index, the NIFTY 50, a 50 stock index is used extensively by investors in India
and around the world as a barometer of the Indian capital market. The NIFTY 50 index
was launched in 1996 by NSE. However, Vaidyanathan (2016) estimates that only
about 4% of the Indian economy / GDP is actually derived from the stock exchanges in
India.
Unlike countries like the United States where nearly 70% of the country's GDP is
derived from large companies in the corporate sector, the corporate sector in India
accounts for only 12-14% of the national GDP (as of October 2016). Of these only
7,800 companies are listed of which only 4000 trade on the stock exchanges at BSE
and NSE. Hence the stocks trading at the BSE and NSE account for only around 4% of
the Indian economy, which derives most of its income-related activity from the socalled unorganized sector and household spending. Economic Times estimates that as
of April 2018, 6 crore (60 million) retail investors had invested their savings in stocks
in India, either through direct purchases of equities or through mutual funds. Earlier,
the Bimal Jalan Committee report estimated that barely 1.3% of India's population
invested in the stock market, as compared to 27% in the United States and 10% in
China.
Bonds
Organizations may borrow funds by issuing debt securities named as bonds, having a
fixed maturity period (one year or more) and pay a specified rate of interest (coupon
rate) on the principal amount to the holders. Bonds have a maturity period of more than
one year which differentiates it from other debt securities like commercial papers,
treasury bills and other money market instruments.
A bond is a debt instrument, usually tradable, that represents a debt owed by the issuer
to the owner of the bond. Most commonly, bonds are promises to pay a fixed rate of
interest for a number of years, and then to repay the principal upon maturity.
Types of Bonds:
1. Coupon Bonds:
It pays a stated coupon at periodic intervals prior to maturity. It also pays the bond’s
face value at maturity.
2. Perpetual Bonds:
It has no maturity date. It pays a stated coupon at periodic intervals.
3. Zero Coupon Bonds:
Zero Coupon Bonds are issued at a discount to their face value and at the time of
maturity, the principal/face value is repaid to the holders. No interest (coupon) is paid
to the holders and hence, there are no cash inflows in zero coupon bonds. The difference
between issue price (discounted price) and redeemable price (face value) itself acts as
interest to holders.
The issue price of Zero Coupon Bonds is inversely related to their maturity period, i.e.
longer the maturity period lesser would be the issue price and vice-versa. These types
of bonds are also known as Pure Discount Bond or Deep Discount Bonds. Generally
speaking, deep discount bonds have a comparatively lengthy maturity period.
4. Convertible Bonds:
The holder of a convertible bond has the option to convert the bond into equity (in the
same value as of the bond) of the issuing firm (borrowing firm) on pre-specified terms.
This results in an automatic redemption of the bond before the maturity date.
The conversion ratio (number of equity of shares in lieu of a convertible bond) and the
conversion price (determined at the time of conversion) are pre-specified at the time of
bonds issue. Convertible bonds may be fully or partly convertible. For the part of the
convertible bond which is redeemed, the investor receives equity shares and the nonconverted part remains as a bond.
5. Amortising Bonds:
Amortising Bonds are those types of bonds in which the borrower (issuer) repays the
principal along with the coupon over the life of the bond. The amortising schedule
(repayment of principal) is prepared in such a manner that whole of the principle is
repaid by the maturity date of the bond and the last payment is done on the maturity
date. For example – auto loans, home loans, consumer loans, etc.
Bitcoin
Bitcoin is continuously increasing in popularity across the world. The crucial difference
between actual cash and bitcoin is that it can be utilised without the need for internet
access. It is very tough to identify the address of the users until they connect a bitcoin
address to their name. The users are not tracked by bitcoin usually, although the
addresses where the money is stored are continuously tracked. There are two vital parts
of every address, for instance, private and public.
The bitcoin address is built from the public key. It is very similar as compared to an
email address, anyone can check-up and provide bitcoins. The private key is known to
be identical to that of an email password since it is possible to send bitcoins with the
help of remote access only. That’s why it is essential to keep the private key confidential
or hidden.
To send bitcoins, it is required to verify to the network that you acquire the private key
of that particular address without the private key being revealed. It can be done with a
specific mathematics branch referred to as public-key cryptography.
Whereas the identification of the user possessing bitcoins is known as a public key. The
public access and the ID number are very alike. For an individual to send you bitcoins,
they require your bitcoin address. It is known to be another version of the public key
that can be typed and read effortlessly.
Bitcoin is also known to be a new type of cash. It is predicted to grow at a rapid pace
over the years, along with its value. It is typically purchased as an investment by
numerous industries and people.
Mutual funds:
Mutual fund is a mechanism of pooling resources by issuing units to investors and
investing their funds in securities to get a good return. Out of the return received, the
mutual fund keeps a margin for its costs and distributes the profits to the investors.
These funds have to be invested according to the objectives provided in offer
documents. Investments in securities are spread across a wide cross-section of
industries and sectors and thus the risk is reduced. Unit Trust of India was the first
mutual fund which was started in India. Units as a form of investment is issued by the
Unit Trust of India which is a public sector financial institution.
The SEBI Regulation Act of 1996 has defined a mutual fund as one, which is
constituted in the form of a Trust under the Indian Trust Act, 1882. The structure of a
mutual fund consists of an asset management company, sponsor and board of trustees.
These are explained below.
Features of Mutual Funds:
Management:
The professional consultants have the specialized knowledge due to expertise and
training in evaluating investments. The have superiority in managing the portfolios.
Small Saver:
Mutual funds accommodate investors who don’t have a lot of money to invest by setting
relatively low rupee value for initial purchases, subsequent monthly purchases, or both.
Liquidity:
Mutual fund investors can readily redeem their shares at the current NAV plus any fees
and charges assessed on redemption at any time. Investments made in units give the
advantage of liquidity to the investor.
The investor may purchase the units and sell them at any time in an open-ended scheme.
The small investor does not even have to find any other investor in the stock exchange
or wait for the liquidity of his funds. The terms of payment on re-purchase are low.
Diversification:
Diversification reduces the risk because all stocks may not move in the same direction
in the same proportion at the same time. Share prices can move up or down. The
investor should be aware of these risks while making an investment decision.
Even with risks, it is expected that the mutual funds are able to perform better than an
individual because a careful selection of securities over a diversified portfolio covering
large number of companies and industries is made and the portfolio is constantly
reviewed. Spreading investments across a wide range of companies and industry sectors
can help to lower risk.
Analysis and Selection of Securities:
Mutual funds select a large share of equities in the case of growth schemes. Although
this has a greater risk and potential for capital appreciation is higher in growth schemes.
Besides growth schemes, mutual funds also have income schemes.
When they have income schemes, they invest in securities of a guaranteed return. They
generally select a large share of fixed income securities like debentures and bonds. All
growth schemes are closed-ended and income schemes are either closed ended or openended.