All about Money

Money and Credit section: The Why Series!

By Priyanka Singh

Dear Curious Bugs,
Thank you so much for all the ‘whys’. The question selected for today’s segment is from Money and Credit section and is by Tavish. His question is important as it will teach us a new skill. And I must add, it’s a rather important skill set. He asks –

Why do we keep our money in a bank?

Tavish, I am sure you would have heard your parents saying the word ‘savings’ every now and then. Let’s first understand what is ‘savings’ and why it is important.

Savings is the amount of money that one is left with when all their expenses are taken care of. It is also known as wealth (see the box). It is a good habit to cultivate. And even better if we start at a young age. Before we begin saving, we should first discuss our wants and needs, which plays an important role to further understand the Money, Credit and Debit terms.

Needs: Our basic expenses such as food, house rent, electricity & other utility bills, etc. are considered our needs. All the things needed to live a healthy and comfortable life are needs.

Wants: All the things that we desire such as leather

Arun earns in a month His expenses (Needs) Food
House Rent
Utility Bills
(Electricity, water, and gas) Miscellaneous
Wealth/Savings
Rs. 10,000
Rs. 2,000 Rs. 1,500 Rs. 1,000
Rs. 1,000 ________ Rs. 4,500
Arun really wants to buy a leather jacket. He had wanted to buy shoes too for some time. His expenses (Wants)
Jacket
Shoes Wealth Left
Rs. 2000 Rs. 1500 Rs. 1000
Expenses and Saving calculation of Arun

jackets, branded shoes, etc. are considered as wants. When we think of buying something, let’s ask ourselves – Do I need it or want it e.g. I want to have an ice cream. I need to buy medicines. But when a dentist asks us to eat ice cream after a tooth extraction then our want changes to a need – As prescribed by the dentist, I need to have an ice cream.

Coming back to our topic of Savings – Adults save money to create wealth. The more wealth one has, more secure one feels for a rainy day. If one does not save money, one might find themselves in a bit of a pickle when any need arises e.g. one might not be able to plan a luxury vacation.

People usually save money by depositing it in a bank for the following reasons:

1. It is safe – The money saved in a bank cannot be stolen by robbers (there is the occasional problem of cyber-attack but it’s mostly considered safe).
2. They can earn Interest – All the banks offer us good interest rates to deposit money in their banks.

 How do we calculate interest – Interest = Principal x Rate x Time
/100
Formula to calculate Interest

The interest rate that most banks give ranges between 3% to 7% per annum for savings account e.g. if you deposit Rs. 100 in the bank every month for 1 year at the rate of 5% per annum, at the end of the year you would have Rs. 1260 in your account (you have earned Rs. 60 as interest for keeping money in the bank).

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