Family Economics and Consumer Education

Family Economics And Consumer Education 3 (2+1)

Lesson 09 : Planning for Family Financial Security-Savings and Investments

Types Of Savings And Their Significance

Savings are broadly categorized into two types viz.,

1. Compulsory savings and
2. Voluntary savings

Compulsory savings:
Savings by individuals made under government rules and regulations are known as compulsory savings. Such savings are made compulsory by persons in employment. Compulsory savings are applicable to government as well as private sector employees as the law enforced by the government schemes like provident fund and pension fund are examples of compulsory savings. Such savings are useful to the families of those who are in service in government offices and private firms.
Provident fund: is deducted in monthly installment from the salaries of the employees and the accumulated amount is paid along with interest to the employee after his retirement or death. In case of death of family member nominated person get the amounts.
Under the scheme the employee contributes monthly a certain percent of his income (10%) and employers contribute matching amount. The amount accumulated carries an interest, fixed by government from time to time.
The employee can borrow money up to percentage of the provident fund whenever he needs the same for specified purposes like marriages, or building of houses, family functions etc. the amount is, recovered in monthly installments
Under the pension fund scheme the person receives the amount after retirement in a monthly basis. It is different from the provident fund scheme. In this scheme, the amount is not paid in lump sum, but paid every month after retirement, but there will be certain conditions which have to be met by the employee. The rate of pension depends on basic pay last drawn by employee at the time of retirement.
Another type of retirement benefit available is Gratuity : Gratuity is available to employees of certain institutions and organizations and they get lump sum at the end of their service after a specified minimum period of service. The employee need not contribute any thing to this scheme.
The Government of India has also introduced a compulsory deposit scheme for income tax payers. A certain percentage of their income has to be paid in the bank as deposit for a period of 36 months after which it can be withdrawn with interest, since, this is applicable to income in each year. Families will thus have a certain amount always in compulsory deposit. This gives the family some security while at the same time providing the government ie, the nationalized banks with funds.
Voluntary savings:

Individuals and families can save money voluntarily by depositing in post office or banks and by taking insurance polices or by contributing to public provident fund. People can also buy national saving certificates.