One might have heard of frequently mentioned term, financial literacy. Just as general literacy is important to keep abreast of the events in the world, financial literacy is said to help in financial independence. In the past not so far away in Manipur, rice to be cooked was measured in small baskets called ‘meeruk’. As a measure of frugality, the girl or woman, who is to cook the rice, scoops a handful of rice called ‘muthi’ with hand from the rice set apart for cooking for the family meal and returns it to the earthen pot called ‘chengfu’. While saving a ‘muthi’ of rice may not make much difference to the consumption of rice by the family at the meal, the sense of habit of saving a little possible percolate to the mindset of woman, who takes responsibility to feed the family. Formation of saving habits is basic and critical for the future of a family and, by extension, a nation to prosper.
It is noticed all over the world that people used to save cash and valuables by hiding in eaves of thatch and inside mattresses long before banks sprung up in the towns and neighborhoods. People did realize the importance and requirement of savings. What is saving? It is what remains after deducting living expenses from income or earning. Income may come in various forms and types like monthly paycheck, wages for the labour paid on daily basis or periodically, seasonal crops harvested, allowances given by the government to cope with difficulties, interest or dividend or returns on investment, income for any service rendered, etc. Consumption expenses mainly for food, housing rental, transportation, medical care, education, repayment of loans, etc. are priorities for most of the people. The main question is how to manage expenses in the best way possible in order to save. Management of household expenses prudently depend on many factors, pressing demands, which may be difficult to avoid. A little saving regularly by being frugal over a period of time may become handy.
Saving by an individual helps him to accumulate cash to meet the expenses to procure assets in the short-term, which are not affordable now at the present level of income. To own a car, to construct a new home, to buy a new laptop, etc., one needs to save over a fairy long period of time by sacrificing consumption of goods and services. By foregoing expenses on luxury items like expensive cloths, mobile phones and gadgets, one may be able save to meet expenses of items, which may be more valuable to him. For instance, buying fuels like petrol and diesels for travels, which may be just for fun, may be reconsidered as such consumption of fuel is bad for pocket and environment. No one knows what is in store for him in future. There may be need for huge amounts of money for treatment of illnesses or injuries arising out of accidents or for education and marriage of children, etc. A person who lives for today will most likely see difficulty tomorrow. One should always think about the future. One must not forget the adage- it is best to depend on oneself at any time.
The next question is how to save. Traditionally, cash is saved by individuals by storing in almirahs, chests made of steel or wood or stashing in pillows and mattresses. Such mode of saving is subject to loss due to theft and fire and other calamities. Further, such mode of saving does not give any return by way of interest. Rather, its value is eroded over time due to inflation, which eats away its purchasing power. Banks and post offices provide better alternative saving schemes to individuals. Both of them offer saving accounts, term deposit and recurring deposit schemes. Opening a saving bank account with a little cash with the bank or post office should be the starting point in a journey of saving. One with regular income should decide, after taking into account of all basic necessities, on a fixed sum of money to be deposited with the bank as soon as he receives his income. It has to be a regular habit. The interest offered by banks on savings account ranges between 3.5% and 7.5% per annum depending on the type of bank. Such rates of interest can in most cases offset the erosion of value of money by inflation. Savings account also offer the flexibility of withdrawal by the account holder at any time to meet his immediate requirement. Term deposits in banks and post offices by individuals are safe and attractive saving schemes. Varying rates of interest for periods ranging from one week to a few years are available. They also provide liquidity as they can be en-cashed anytime by losing about one percent interest.
Beside the saving and term deposit schemes of banks and post offices, there are attractive tax saving scheme like public provident fund. For a tax payer, deduction upto Rs.1,50,000/- from income is available under Section 80 C of Income tax Act allowing saving on income tax of nearly Rs.50,000/- per annum. It provides 7.1% rate of interest, which is quite competitive. Such saving and investment is good for those who plan for retirement after about fifteen years.
Buying health and life insurance plans also offer tax saving and coverage against treatment costs and death. While payment of premium for such plans help in reduction of income tax liability, they also help in meeting unforeseen events in life. It is reported that health insurance plans have become very popular in India as increase in collection of premiums for such plans have seen increase upto 50% as reported in Indian Express.
Deposits in banks are available for lending by them to business and individuals for investment in setting up new factories, plants and machineries and infrastructure. It is of prime necessity to channelize savings of individuals and families in economic growth of a state and nation through savings. Domestic rate of saving is an indicator of the health of an economy. By depositing money as a saving, one is not only helping himself, but also helping in the growth of his country. Just as small drops of water form the ocean, saving from lakhs of individuals help in lending and capital formation. There is no reason to delay in forming a habit of saving and start depositing money in banks.
The author is a retired IAS officer and former Chief Secretary, Manipur
