The Concept of Savings

Savings may be temporary or permanent. Temporary savings are designed to achieve immediate goals for example purchasing household equipment or going for a trip during vacation. Permanent savings are set aside for future security. 

The following are the reasons for savings: 

1. To meet the demands at the time of fall in income during old age, sickness and unemployment. 

2. To meet increased expenditure caused by illness, accidents, robbery or household repairs. 

3. The desire to buy capital goods or assets like land, house and durable goods such as four wheeler, refrigerator etc. 

4. For a pleasure trip during holidays. 

5. To celebrate functions and festivals. 

6. To meet the expenditure on higher education and for marriage. 

7. To invest in business. 

8. To gain social status and economic security. 

9. To provide a secure life for the dependents. 

10. To attend social functions like marriages, birthday parties, etc. 

Savings play an important role in raising one’s standard of living and improving the quality of living also. In fact, savings well invested can help to generate more income. Savings give mental satisfaction and the capital to build up the nation’s progressive plans. 

Different Types of Savings: 

  1. Individual Savings Individuals have been in the habit of saving in one form or the other. Traditionally people were saving a part of their income in the form of commodities, animals, precious metals like gold and silver. 
  2. Corporate Savings Corporate savings are exercised by some agencies or companies which highly help in the capital formation of a country (e.g.) Banks. 
  3. Compulsory Savings When the state exercises an element of compulsion or force in making the individuals to save, that is called compulsory savings (e.g.) Employees provident Fund, General provident Fund.

Factors Affecting Savings: 

The factors such as income, current needs of members, habit for thrift, opportunities available for savings, the provision for future, and the size of the family, the standard of living, the cost of living, the economy of the country and the willingness of family members have a bearing on savings. 

Institutions which Promote Savings:

Several institutions are ready to help a person to save periodically by offering various attractive schemes. 

Role of Post Offices 

Post offices have been rendering banking services along with their postal duties. In the post office savings account, an amount of Rupees five and above can be deposited at any time, but withdrawals are allowed once a week. The deposited amount earns a certain percent of annual interest. The interest is exempted from income tax. The post offices also provide five year and ten year recurring deposit schemes. National savings certificates are sold in post offices for a minimum of rupees one hundred and above. It qualifies for income tax rebate. At the end of six years, the amount together with interest is repaid. The annual interest accumulated is also exempted from income tax as it is again re-invested in the same scheme. National savings scheme accounts can be opened in major post offices by depositing a minimum of Rupees one hundred.

Role of Banks 

The main purpose of the banks is to accept deposits and to lend these deposits to reliable borrowers at a higher rate of interest. Savings bank account is a system where small deposits are accepted. Deposits may be made at any time, but interest is calculated for a minimum period of three to six months. The Recurring Deposit scheme, marriage deposit scheme, loan linked deposit scheme, prize deposit scheme, double benefit schemes are the other schemes offered by the Banks for the welfare of the people. Loans at a lower rate of interest are advanced to farmers by the banks.

Role of Life Insurance Corporation of India 

Life insurance is a contract between the individual called the insured and the insurance company. Here the insured makes payment of money every year or at different intervals. In return, the company agrees to pay a certain amount after a specific period or at the death of the insured to a third party known as the beneficiary. In the case of the death of the insured too, the family can lead an economically secure life. The premium amount that one has to pay varies according to the age of the insured, the sum insured and the period. Following are some of the various forms of life insurance policies now in force: Jeevan mitra, Jeevan sathi, Jeevan surabi, Jeevan akshay, Jeevan anand and so on. 

Role of Unit Trust of India (UTI) 

This is a public Sector financial institution and offers various schemes for attracting investments from the public. The Unit Trust Offers a safe way for people to invest their money in companies. The Unit Trust buys shares and stocks in various companies. Individuals can buy units from the Unit Trust. Besides selling units, the Unit Trust also has other schemes such as Unit Linked Insurance Plan (ULIP), Children’s Gift Growth Fund (CGGF) and Monthly Income Unit scheme to encourage savings. 

Provident Fund (PF) 

This is a compulsory saving scheme for all salaried persons. This gives a lot of financial security to every employee. There are two kinds of provident Fund. They are the General Provident Fund (GPF) and Employment Provident Fund (EPF). Under GPF, a Specific amount or a certain percentage of the basic pay is deducted from the salary of the employee every month. It is ideally suited because the accumulated amount is paid to the employee at the time of retirement. One can take loan upto 60% of his collection and return it later from his salary every month. This kind of provident fund is followed for government employees. EPF is a compulsory savings scheme for private company employees. 

Understanding where money comes from (income), where money goes (taxes and expenses), and how money can be managed (budgeting and saving) makes an individual or family handle money with care.

Categories: Education

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