Why Financial Literacy?

They said it:

"We are not taught financial literacy in school. It takes a lot of work & time to change our thinking and to become financially literate" - Robert Kiyosaki 

"If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest" - Benjamin Franklin 

Bank Money - Cheque

Paper notes or the coins, which we handle are known as 'Standard Money'. Apart from this type of money, we also handle 'Bank Money'. You must have handled cheques & demand drafts. These are called 'Bank Money'.

What exactly is the meaning of a cheque?

It is an important banking document. It is like a letter written by the account holder to his bank. What does this letter contain? It includes some instructions which the account holder gives to his bank. 

With a cheque, one can instruct/order your bank to pay money from his/her bank account to another person. e.g. Ramesh has a bank account in the State Bank of India. He gives a cheque of Rs. 10,000 to Suresh. What does this mean? It means that Ramesh has written  a letter to his bank. In this letter, he has given instructions to his bank (SBI) to pay Rs. 10,000 from his account to Suresh.

For any type of cheque, 3 persons are required. They are: 

1) Payer - The person who issues the cheque i.e. Ramesh

2) Payee - The person to whom the payment is made

3) Drawee - The bank i.e. SBI

It is important to know these terms. They appear on the cheque. (Please see the picture above)

What is the importance of a cheque?

Most importantly, it is not necessary to handle the cash when a cheque is issued. Also, the transaction (व्यवहार) gets recorded in the bank passbook. Therefore, we can also refer to the transaction details in future also. 

Is the cheque valid all the time?

No, a cheque is valid only for 3 months. 3 months from the date on which it is issued. If this period lapses then such a cheque is called 'stale cheque'.

Are there different types of cheques?

Yes, following are the types of cheques

1) Bearer cheque - Bearer means a person who holds the cheque in his hands. The bank gives the money to the person who holds the cheque. Have you seen the word "Or Bearer" on a cheque? Please see the picture above. When one issues a bearer cheque, he does not strike off these words. 

E.g. Ramesh issues a bearer cheque of SBI to Suresh. How will Suresh get money out of this cheque? Suresh will go to SBI & show it at the cash counter. SBI will ask for some identity proof, signature, etc. to ensure that the person at the counter is Suresh only. Once this is done, Suresh immediately gets the money from SBI at the counter itself!

Is it risky? Yes. What will happen if Suresh loses it? Any person who finds it can get it encashed at SBI by fraudulent means.(showing wrong identity as that of Suresh)

How to avoid the risk? - Unless there is some compulsion, avoid issuing bearer cheqes, strike off the words 'Or Bearer". Issue a crossed cheque.

2) Crossed Cheque - To cross means to draw two parallel lines at the left hand side top corner & to strike off the words 'Or Bearer'. Between the parallel lines, generally the words 'a/c payee' may be written. 

If Ramesh issues a crossed cheque of SBI to Suresh, then Suresh will deposit it into his own bank account (say HDFC Bank). HDFC Bank will send the cheque to SBI for its information & necessary action. SBI will then give the amount from Ramesh's account to HDFC Bank. This amount will be desposited into HDFC Bank account of Suresh.

Is it safer than a bearer cheque? yes, because this is a bank to bank transfer. Nothing happens at the cash counter.

3) Post dated cheque - When the amount is to be paid to a person in future, (say a month) then a post dated cheque can be issued. The date of payment (after 1 month) is written on such a cheque. Such a cheque is given to the payee today but payable only on the future date mentioned on the cheque. 

These are typically issued while paying EMIs etc.

4) Self Cheque - When an account holder wishes to withdraw money from his own account, he can issue a cheque to himself. The name of the payee is written as 'Self' on the cheque. 

Due to ATMs, these cheques have practically become redundant (not useful)

6) Yourself Cheque - When an account holder wants to issue a cheque to his bank itself, then such a cheque is issued. E.g. Ramesh has bank account in SBI & wants to invest Rs. 10,000 in Fixed Deposit of SBI itself. Ramesh will issue SBI cheque of Rs. 10,000 to SBI itself! Therefore the name of the payee is written as 'Yourself' on the cheque. 

Have you heard the word 'CTS'?

W.e.f. (With effect from) 1.4.2013, RBI has started a new Cheque Truncation System (CTS). When there are bank to bank handling of cheques (see example of crossed cheque above), the banks will not physically move the cheques. They will scan the same & complete their transactions through internet. 

This will save time. Money can be transferred from one bank to the other within a day or two.

Please Remember - Since image of the cheque is scanned, it is very important that we do not fold, scratch, spoil the cheque (especially at the place of signature)!

What is money?

They said:

"If women didn't exist, all the money in the world would have no meaning"- Aristotle Onassis

"Money can't buy love, but it improves your bargaining position."Christopher Marlowe

=================================================

We all use the term 'money' quite commonly. Everyone wants it and uses it. But do we really know what it is?

Before introduction of money, there was another system for buying and selling a particular commodity. 

Let us assume that Meena possesses surplus rice. She also needs some wheat. On the other hand, Leena has surplus wheat and needs rice. So, what should they do? They will come together. Meena will take required quantity of wheat from Leena & give that much rice to her. In the same manner, Leena will also get what she wants. 

Similar system was there for exchange of services too. This system of exchanging the goods (वस्तू) and services was called 'Barter System'. 

Can you imagine what type of problems would exist in such a system? 

• Is it easy to find a person who needs the goods which you have, and at the same time has the surplus of what you need? 
• What if the item is perishable (नाशवंत) like vegetables and changes its form, before it reaches the buyer's hands?
• Is it easy and realistic to exchange something immovable like a house for movable item like grains?
• If one wants to exchange a goat for rice, how will he/she divide goat into equivalent value of rice? 

In order to overcome these problems, the concept of money was introduced. You can now think of the characteristics of money! They are: Durability, Portability, Divisibility (विभागणी) and uniformity (सर्वांसाठी एकच मूल्य) 

Do you see these qualities in the paper notes that we use today? Based on the characteristics of money, one can understand the following Functions of money:

• Money is a store of value (किंमत साठवणे)- Ramesh gets pocket money of Rs. 500 p.m. (per month) and wants to save it for his picnic. He can do so because value of money can be stored.
• Money is unit of account - It is possible to measure the value of a good in terms of money e.g. a T-shirt costs Rs. 1000. This is possible because of money.
• Money is a medium of exchange - Money is widely accepted as medium of exchange. Because of its characteristics (mentioned above), nobody refuses to accept money, in exchange for goods or services. 
• Money is a standard of deferred payment - If Suresh buys a machine from a company for Rs. 10,000, and the company allows him to pay the amount after (say) 1 month. This period of 1 month is called 'Credit' period. Such a delayed payment is called 'deferred payment'. Now a days, global economy runs mostly on credit system only. This is possible because of money.

In short: 

• Money is an intangible concept. It means money cant be touched, smelled, etc. But it can be seen in terms of the numbers & its form.
• It has certain characteristics & functions

Purpose of the blog

While writing in an educational magazine 'Jadan Ghadan' about Financial Literacy, I came to know that many of our youngsters know how to use the internet & mobile but they don't know how to draw a cheque or a demand draft, how to open a bank account, how to use ATM safely, where to invest, etc. 

Even in cities there are many youngsters who are just scared of the words 'money', 'finance', 'investment', etc!!

While conducting sessions on Financial Literacy for Vidyadan Sahayyak Mandal (VSM), I realised that there are many students of India who are bright but can't afford even basic education! Such organisations are helping students for their basic need & right of education. 

However, what will happen when they will start earning money? they won't know how to manage the same!! I know that there are many such students, teachers, youngsters in India who are deprived of this basic understanding of money just because they have never seen it!!

Then I thought of sharing my knowledge to the extent I can...Though I know that any aggregate knowledge that one may have, it always remains on the top of the ocean...

Since many students may not be experts in English, I have tried to write in small & simple sentences which may also give them practice of English reading.

In short, the purpose of this blog is nothing but "Sharing"