Make your children financial savvy – Part I

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We should make our children learn to handle finances early in life. Open a personal account for them in a bank and encourage them to make regular savings from their pocket money etc. Putting the habit of saving money is very important, it will help them when they grow up as adults. Growing up as spendthrifts hits them in later stages of life.

Teach them all banking operations such as making demand drafts , putting their money in fixed deposits , handling recurring deposit accounts etc.

Let them fill the forms for making demand drafts for education fees etc.

Let them fill in deposit slips and withdrawal slips of their bank accounts.

Teach them everything about managing, investing and saving money.

Some important calculations and formulas that need to be taught to them.
FORMULAS:
How to use these formulas?

The calculations can be done manually or on MS excel worksheet using ‘=’ sign before the calculations.

Formula1:
Q.1 I want to invest Rs.50000 in a bank fixed deposit for 5 years at 9 per cent interest per annum. How much will I get on maturity?
Formula:

When money is put in a fixed deposit for a certain period, the final amount needs to be calculated using compound interest formula. The interest earned is a fixed percentage per annum but banks usually compound it every quarter. You get more from quarterly compounding than from annual compounding.

Note:

You need to check the terms and conditions with your bank to find out what kind of compounding is done i.e. whether annual compounding or quarterly compounding.

Maturity Value = P * (1+ R% ) ^ N

In the above case ,
Amount Invested i.e. Principal amount ,P = Rs.50,000
Rate of interest per annum ,R = 9%
Time duration in years , N = 5 years.

Case 1

: For annual compounding :
Maturity value = P * (1+ R% ) ^ N
= 50000 * (1 + 9% ) ^ 5
= 76931.19775

Case2

: For quarterly compounding :
The above formula is modified to:
Maturity Amount = P * (1 + R% /4) ^ (4 * N)
= 50000 * (1 + 9/400) ^ (4*5)
= Rs 78025.46

To calculate using Ms Excel use the formula as =50000*(1+9%/4) ^ (4*5) and press enter key once you have entered the formula.(don’t forget to put ‘=’ sign in front of the formula)

Note:

‘ * ‘ Operation stands for multiplication
‘ ^ ‘ Operation stands for ‘raise to the power’

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