In our previous column we saw how to open a bank account and save money. Have you opened your bank account yet? Great! Do you know how much interest you will be earning from your savings account? It is around four per cent. Are you happy with it?
This four per cent interest rate is pretty good compared to keeping your money under the mattress or in a piggy bank. But do you know that there are ways to earn more money with your money? Over the next few columns, we will see how we can maximise the money we can generate from whatever we have saved up.
Before that, let us understand the difference between savings and investments. When you spend less than you earn, you are essentially saving. When you keep the money in a piggy bank or in a bank savings account, you are once again saving. Savings do not have the risk of loss. In other words, when you save money, you will never lose the money saved.
In fact, when you keep the money in a savings account with a bank, your money actually earns a small interest.
In the bank
Since savings are risk free, why should you not be happy with just saving your money? It is because, the price of goods and services that we consume keep going up. Also, the price of assets like land , apartments and houses keep going up, year after year. So, left to itself, your savings will lose value. Twenty years ago, the price of a movie ticket was 10 rupees. If you had saved 50 rupees 20 years ago in a piggy bank, what would it be worth today in terms of what it can buy. Back then, it could have purchased five movie tickets. But today, that money is not enough to buy a single movie ticket, which costs over a hundred rupees.
Would the situation be any different if you had saved up that 50 rupees in a bank savings account instead of a piggy bank? If we assume that the bank pays you four per cent interest every year and you save that interest as well, you end up with around 110 rupees, after 20 years. Good enough to buy a movie ticket today, but just one, compared to the five it could buy 20 years ago.
How do we keep the buying power of our money intact? Where should we keep our money so that 20 years later, we are able to buy the same things that we are able to buy today. The answer to that is Investing. What exactly is this new thing Investing? We will learn about it in our next column
Money Trivia : Little acorn to mighty oak
Do you know that Fred DeLuca started Subway (sandwich ) restaurant with just $1,000, and that too he had to borrow from a friend. Today, Subway is the largest single-brand restaurant chain globally and is in over 100 countries and 37,000 locations.
Young World Money-Wizards Quiz #13
This American business man, lawyer and philanthropist is Warren Buffet's business partner. He is also one of the smartest investors and is a self made billionaire. Can you name him?If you know the answers, email your answers to youngworld@money-wizards.com. The first four correct answers and the most articulate answer within seven days will each be awarded flipkart evouchers worth Rs. 250. The results and the answers will be published at www.money-wizards.com.
About Money-Wizards: A company in financial literacy and money education. They conduct workshops and after school classes on money education for school children. If you want Money Wizards programmes in your school or neighbourhood, write to Info@Money-Wizards.com
