Financial Health and Well-being PDF

# Financial Health and Well-being ## III Semester ### Department of Commerce | Code | Course Title | Course Duration | Offered to | Session | Credits | |---|---|---|---|---|---| | OEC4 | Financial Health and Well-being | 45 Hours | All students | 3 Hours a Week | 3 | ### Course Objectives: 1. To f...

# Financial Health and Well-being ## III Semester ### Department of Commerce | Code | Course Title | Course Duration | Offered to | Session | Credits | |---|---|---|---|---|---| | OEC4 | Financial Health and Well-being | 45 Hours | All students | 3 Hours a Week | 3 | ### Course Objectives: 1. To familiarise students with basic concepts of financial health 2. To understand financial planning and budgeting ### Course Outcomes: 1. Illustrate the framework for financial well-being to understand the overall role finance plays in personal life. 2. Demonstrate an understanding of financial environment and its components 3. Explore the various avenues of investment and insurance plans 4. Comprehend the process of financial planning and budgeting ### Reference Books: | # | Title | Author/s | Publisher | |---|---|---|---| | 1 | Financial Literacy | Durrant Shaun M | Malvary, LLC | | 2 | Financial Literacy | Malabre Nevar Theodore | Noble Financial Investment | | 3 | Confessions of a Financial Planner | Holland David | Holland Productions | | 4 | Personal Financial Planning | Murali Subbakrishna | Himalaya Publisher | | 5 | Financial Literacy | Mohammed Umair | Himalaya Publisher | ## Unit | Title | Hours | Contents | |---|---|---|---| | 1 | Foundation to Financial Well-being | 10 | Role and importance of money, III effects of money, Concept of financial health and well-being, Pillars of financial health, Financial Literacy - Concept and Scope, Prerequisites of Financial Literacy - Financial knowledge, Financial skills and Financial etiquette. | | 2 | Financial Environment | 08 | Types of financial institutions, Classification of Banks in India, Scope of fintech services and Cashless banking, Financial services offered by post office, Credit rating for individuals - Concept, factors considered for computing credit score | | 3 | Protection and Investment | 10 | Objectives of investing, Difference between saving and investment, Investment avenues- Investment Portfolios - Physical, Financial, Marketable and Non-Marketable. Need and importance of life and health insurance. Types of life, retirement plans-NPS; and health insurance plans. | | 4 | Financial Planning and Budgeting | 12 | Financial planning - Importance, application and procedure. Preparing a budget, Budget surplus and deficit, Avenues for parking surplus and Sources of meeting deficit, Personal and Family Budget - Importance and Pro forma, Steps in preparing an efficient budget, Financial tools for individuals. | ## Learning by Doing activities: 5 Hours ## Know your Course Instructor Mohammed Umair is a Faculty Member at School of Business, St. Joseph's University, Bangalore. He specializes & teaches Finance and Taxation Courses for Undergraduate and Post graduate programmes. He also teaches management students of MBA Executive programme offered by St. Joseph's Institutions. Prior to his academic career, he has worked for several MNCs, to name a few HSBC, ICICI, IBM, Cognizant and Honeywell in different domains like recruitment, operations, training and finance. His passion towards teaching drove him to education sector and in a span of 11 years he is recognized as a distinguished and committed teacher by the students and colleagues. Mohammed Umair is also an enthusiast researcher and has presented & published research papers in various international conferences and research journals. He is currently pursuing his doctoral research in behavioural finance. In addition to teaching and research he is also an author for several text books on subjects like Marketing, Financial Management, Income tax and International Business. Mohammed Umair is also known for his quizzing skills and has conducted more than hundred quiz shows for various college fests. During his student life he was a recipient of 'Student of the Year' award in graduation. He has also won many accolades as an employee in ICICI and cognizant which includes 'Performer of the Year' award. Feedback: [email protected] Questions: 9663632900 (Whatsapp) # Chapter 1: Foundation to Financial Well-being ## 1.0: ROLE AND IMPORTANCE OF MONEY Money allows us to meet our basic needs-to buy food and shelter and pay for healthcare. Meeting these needs is essential, and if we don't have enough money to do so, our personal wellbeing and the wellbeing of the community as a whole suffers greatly. We all have a responsibility to work towards a society where everyone has access to adequate food, shelter, and healthcare, where we are all safe. Most of our life problems can be solved or reduced with the help of money. Money does help us in so many aspects of life. Thus, we are all looking for more opportunities to make money. However, money is not the most important thing in life on its own. So why is money important? 1. Freedom of choice and expression: Stop thinking about money in terms of being wealthy and instead consider how it might provide you with financial independence. Money is significant because it allows you to do anything you want, whenever you want, and wherever you want. 2. Happiness can be derived from money: Money makes people happy not just because it exists, but because it can be used to satisfy their desires. Scientists have shown that people who spend money on new experiences rather than objects have a higher level of enjoyment. 3. Money is an indication of social status: Money is quantifiable, making it a useful tool for determining where people fall in the social order. Thus, the rich spend more on what will keep them rich, because they can. 4. Money provides sense of security: You are less stressed when you are financially secure, which allows you to focus on other matters. As opposed to being ruled by your finances, you are in charge of your finances. 5. Money is measure of success: Successful people are always shown as wealthy and living a glamorous lifestyle. This image has led many people to believe that money is a measure of success. 6. Money is a source for charity: Money may provide us the ability to make a difference in other people's lives. ## 1.1: ILL EFFECTS OF MONEY Money can buy materialistic items, but it cannot buy many spiritual qualities such as inner peace, happiness, and a kind heart. As a result, money has several disadvantages. 1. Money can buy pleasure but not happiness: Happiness cannot be purchased with money. It gains pleasure. No matter how much money you have, if you don't practise gratitude and learn how to be joyful, you'll never be pleased. 2. Money can't buy time: The exceedingly wealthy have spent vast sums of money in a futile attempt to lengthen their lives, only to discover that they die at the same age as the rest of us. 3. Money is not the purpose of life: The purpose of life, from a religious standpoint, is to focus on spiritual progress and service to humanity. 4. Greed for money can destroy our mental health: You're unlikely to be happy if all you have is money but no one to spend your life with and nothing to enjoy. 5. Money can't buy relationships: You can't purchase a family with money. Love is the only way to build and maintain a bond between family members. Conclusion: Earning money is something we should all strive for in order to fulfil our objectives, assist people in need, and have more options in life. Money is needed for the betterment of our own personal life experience. Making money is not a problem; the problem is valuing money as a goal in life and believing that it can purchase anything. Money is beneficial to us in a variety of ways. As a result, we're all seeking for new ways to make money. However, money is not the most important thing in life on its own. It is not worth sacrificing all of life's other necessities for money. ## 1.2: CONCEPT OF FINANCIAL HEALTH AND WELL-BEING What is financial Health? The state of a person's financial situation can be described as financial health. Being in good financial health is an important element of overall health since, the stress that comes with not being in good financial health may quickly lead to physical illness. What is Financial Health Check-up? A financial health check-up is an assessment of your capacity to manage your financial requirements and desires. ## 1.3: PILLARS OF FINANCIAL HEALTH 1. Financial literacy: Financial literacy is essential for you since it will provide you with the knowledge and skills necessary to efficiently manage your finances. In the absence of the same, your actions and decisions regarding savings and investments would be without a good foundation. 2. Earnings: Earning more money can provide you with more options, but it does not guarantee that you will make the best or prudent decisions, so you must comprehend the ideas of saving, spending, investing, and sharing. 3. Budgeting: A budget will show you how much money you plan to receive in, as well as your mandatory expenses (like rent and insurance) and discretionary spending (like entertainment or eating out). Rather than seeing a budget as a hindrance, think of it as a tool for accomplishing your financial objectives. 4. Spending: A proper spending plan can aid in the prevention of spending leaks, or the spending of money without thought. 5. Savings: In general, you should try to save at least 10% of your monthly earnings. If that isn't an option, any amount saved will help you improve your financial situation. 6. Investing: It's smart to make money; it's even better to put your money to work (invest) for you in order to increase your wealth. 7. Giving: If people believe they have enough extra money to cover their present and future expenses, they can gift or donate money to friends, family members, or set up charity trusts. ## 1.4: FINANCIAL LITERACY - CONCEPT AND SCOPE Being financially literate provides a variety of benefits that can improve an individual's standard of living by increasing financial security. It aids in the betterment of personal financial management. Personal finance is a process which involves the acquisition, practice, and application of a wide range of financial skills. The scope of financial literacy encompasses a wide range of skills. What is financial literacy? Financial literacy refers to the ability to understand financial concepts and application financial skills to achieve life goals ### Scope of Financial Literacy 1. Managing income: The term "income" refers to the amount of money that comes into the household in the form of earnings. ‘managing income,' means spending intelligently so that all of your demands are covered. You will need to create a 'spending plan' for this. 2. Managing Expenses: Expenditure refers to the money we spend from our earnings to acquire various items to meet our requirements. It enables an individual or family to live within their income while simultaneously saving for future needs and emergencies. 3. Managing Debt: Debt is nothing but borrowed money. Borrowing money for things that are essential for a living is considered good debt. For example, purchasing a home or paying for college fee. Bad debt, on the other hand, is borrowing money for needless expenses. 4. Create Saving: A portion of an individual's or a family's income should be set aside for future use as well. This money is set aside is regarded as 'savings,' and it can be utilised for any purpose in the future. 5. Investing: Rather than keeping money in a bank account, it can be diverted to investment avenues. Investing is all about creating and growing wealth so that you can live a secure and happy life. 6. Tax planning: Tax planning is the process of saving money by lowering your tax liability. The Income Tax Act of 1961 contains a number of provisions that allow you to claim deductions and save money on taxes. 7. Healthy Credit Score: A credit score is a measurement of a person's ability to repay a debt. A credit score ranges from 300 to 900 points. If your credit score is between 750 to 900, it is regarded as good for availing credit services such as loans and credit cards. ## 1.5: PREREQUISITES OF FINANCIAL LITERACY Being financially educated is not just knowing the facts about money but also taking the appropriate procedures to achieve the desired financial goals. If you acquire the following basic knowledge & skills that allows you to make smart decisions with your money, you'll improve your financial awareness over time. ### a. Financial Knowledge Financial knowledge and decision-making skills help people make informed financial decisions through problem-solving, critical thinking, and an understanding of key financial facts and concepts. The following are the important components of financial knowledge. 1. Level of education: Take the initiative to self-educate and grow your financial knowledge, by beginning with the basics of money management and maturing into a smart spender. 2. Understanding financial markets: Financial market activities have a direct impact on individual wealth, business actions, and the efficiency of our economy. This is direct relationship between financial education and financial market participation. 3. Investment opportunities: There are many investment options are available for the investors to invest. Many times, investors are aware of it and few times they are not aware of it. Awareness of investment opportunities and financial instruments is important part of financial knowledge. 4. Economic environment: The understanding of economic environment will expose you to many of the political disputes surrounding the conduct of economic policy and will aid you in gaining a better understanding of economic phenomena you read about in the news. Example: - Interest rates - Inflation - Tax rates ### b. Financial Skills Finance skills are soft and hard skills that enable stakeholders to manage and navigate financial decision-making and problem-solving. 1. Budgeting: Making a budget is a vital step in developing financial literacy skills because it allows you to gain a real picture of your income and expenses. 2. Financial planning: Financial planning is the long-term process of properly managing your finances to assist you in achieving your goals and dreams while managing the financial obstacles that inevitably come at every stage of life. 3. Numerical skills: Basic numeracy skills such as multiplication and division, as well as decimals, percentages, fractions, and negative numbers, are critical for making basic financial judgments. 4. Communication skills: "Soft skills" are required for financial success. Financial literates must be able to communicate their knowledge with strong speaking, writing and presentation skills. ## B: Financial Etiquette Financial etiquette is a set of behaviours that are expected or required in order to become financially literate. 1. Sharing confidential financial data: Advice such as 'it is nice to share' and 'sharing is caring' are frequently mentioned in conversations, especially when we are spending time with family and friends. 2. Gifting: When we die, we leave behind everything we own on the planet. We do not take anything with us. 3. Spending: Some people experience financial difficulties as a result of not earning enough money. Many others, on the other hand, have a problem because they do not spend their money sensibly or spend more than they earn. 4. Tax payment: Filing income tax forms on time allows you to be a good citizen, contribute to India's prosperity, and provide peace of mind for you and your family. # Chapter 2: Financial Environment ## 2.0: FINANCIAL ENVIRONMENT Financial environment includes bond markets, forex markets, stock markets, commodity markets, OTC markets, Real estate markets and cash or spot markets. All these markets play an important role in raising finances for the companies and at the same time give profits to the investors. What is financial environment? The financial environment is an important part of the economy, which includes organizations, investors, and markets. ## 2.1: TYPES OF FINANCIAL INSTITUTIONS A financial institution is an organization that engages in a wide range of monetary transactions, such as cash deposits, loans, stock exchanges, and financing. It acts as the intermediary between those who want to deposit or invest money and those who need to borrow or raise funds. Financial Institutions - Commercial Banks - Co-operative Banks - Banking Institutions - Small Finance Banks - Payments Banks - Insurance Companies - Asset Finance Companies - Non-Banking Institutions - Loan Companies - Merchant Banking Companies - Stock Broking Companies - Housing Finance Institutions - Venture Capital Institutions - Infrastructure Finance Institutions - Micro Finance Institutions - Gold Loan Institutions Financial institutions are thus divided mostly according to the types of transactions they undertake, with some of them being involved in banking transactions. Others, on the other hand, are involved in non-banking transactions. Banks have long been one of the most important financial institutions in the world. Non-banking financial institutions, generally known as NBFCs, perform lending and other financial activities in addition to banks. Although NBFCs and banks have some similarities, they are also very different in many ways. | # | Point of Difference | Banking Institutions | Non-banking Institutions | |---|---|---|---| | 1 | Function | A government-approved financial intermediary that offers banking service to the public. | NBFCs provide financial services to people without holding Bank License. | | 2 | Incorporation | A bank is registered under banking regulation act, 1949 | NBFC is registered under company's act 1956/2013. | | 3 | Acceptance of deposit from public | Banks accept and lend deposit. | NBFCs do not accept and lend deposit. | | 4 | Statutory reserve requirements | Mandatory to maintain statutory reserve ratios as per RBI mandate | Not Required Mandatory to maintain statutory reserve ratios. | | 5 | Regulatory body | Reserve Bank of India | NBFCs have different regulators | | 6 | Foreign Investment | Allowed up to 74% for private sector banks. | Up to 100% is allowed | | 7 | Insurance on Deposits | Available | Not Available | | 8 | Credit Creation | Banks can create Credit | NBFCs do not create Credit | | 9 | Payment and Settlement system | An Integral part of the System | Not a part of the System | | 10 | Transaction services | Bank provides a variety of transaction services | NBFC does not facilitate transaction services. | ## 2.2: BANKING INSTITUTIONS A bank is a type of financial institution that is licensed to accept deposits and provide loans. Banks play an important part in a country's economic standing. Banks are strictly regulated in most nations due to their importance in the economy. In India, the Reserve Bank of India (RBI) is the apex banking authority in charge of the country's monetary policy. ### Classification of Banking Institutions in India - Public Sector Banks - Private Sector Banks - Banks in India - Commercial Banks - Small Finance Banks - Payments Banks - Co-operative Banks - Foreign Banks - Regional Rural Banks - Urban Co-operative Banks - State Co-operative Banks 1. Commercial Bank: A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit. Commercial banks are governed by the Banking Regulation Act of 1949, and their business model is profit-oriented. - Public Sector Banks: These are the nationalised banks, which account for more than 75% of the country's overall banking industry. The government owns the majority of these banks' shares. SBI is India's largest public sector bank in terms of assets. - Private Sector Banks: Private-sector banks are those in which private shareholders own the majority of the company rather than the government. Private promoters own, manage, and govern private sector banks, which are free to operate in accordance with market forces. - Foreign Banks: Foreign banks are registered and have their headquarters in another country, yet they have branches in India. These banks can operate through branches or wholly-owned subsidiaries, according to the RBI. - Regional Rural Banks: On October 2, 1975, the Indian government established Regional Rural Banks (RRBs). They were established to provide banking and financial services to remote communities and therefore operate in several states in India. These banks help small and marginal farmers in rural areas by providing finance. 2. Small Finance Banks: Small financing banks were established with the goal of reaching out to the unbanked population in distant and underdeveloped locations. Small Finance Banks (SFBs) became public in India on September 16, 2015, when the Reserve Bank of India authorised the establishment of small financial institutions known as small finance banks in accordance with the Union Budget of 2014-2015. 3. Payments Bank: The Reserve Bank of India conceptualised Payments Banks as a new type of bank in India (RBI). These banks can accept a limited deposit, which is now capped at Rs. 200,000 per person but could be raised in the future. These banks are unable to provide loans or credit cards. 4. Co-operative Banks: Cooperative banks are governed by an elected managing committee and are governed by the Cooperative Societies Act of 1912. A cooperative bank is a voluntary organisation that caters to its members' financial requirements on a mutual basis. They take deposits and lend money to their members in the form of mortgages and other sorts of loans. ## 2.3: NON-BANKING INSTITUTIONS Non-Banking Financial Companies (NBFCs) are organizations that offer financial services and banking services but do not fulfil the legal definition of a bank. NBFCs have become essential for all business services, including loans and credit facilities, retirement planning, money markets, underwriting, and merger and acquisition activity. As a result, these firms play a significant role in providing credit to the unorganised sector as well as small borrowers on a local level. Let us now discuss the various categories of NBFCs and their functions. 1. Insurance company Insurance corporations are financial intermediaries which offer direct insurance or reinsurance services, providing financial protection from possible hazards in the future. - Life insurance companies: Life insurance companies offer policies that protect you from the risk of death. - General insurance companies: General insurance companies offer products that protect financial losses caused by a variety of risks excluding death. Health insurance, motor insurance, marine insurance, liability insurance, travel insurance, and commercial insurance are all examples of general insurance products that cover a wide range of risks. 2. Stock Broking Companies A stock broking firm is a professional organisation that executes orders in the stock market on behalf of their clients. Their business activities primarily include obtaining and executing buy and sell orders for their clients. To invest in stocks and other investment alternatives, market participants or investors rely on their experience to understand market dynamics. Brokerage firms are also commonly known as stockbrokers. 3. Asset Finance Companies Asset finance businesses, which are typically banks or independent asset finance brokers, provide asset finance services. Asset finance is a method of funding the acquisition of an asset. There are a variety of reasons why a person or an organisation may choose to buy something through an asset finance company, including opportunity costs and tax implications. Due to inadequate cash flow, most businesses explore asset financing. 4. Loan Companies Under the Companies Act of 2013, a Loan Company is a type of Non-Banking Financial Company (NBFC). A loan company is a financial institution that has as its primary business as providing finance, whether through loans, advances, or other means, for purposes other than its own. - Types of Loan Companies: - Housing Finance Institutions - Venture Capital Institutions - Infrastructure Finance Institutions - Micro Finance Institutions - Gold Loan Institutions 5. Merchant Banking Companies A merchant banker is a person who engages in the issue management business by establishing arrangements for the trade and subscription of securities, or by acting as a manager or consultant, or by offering advisory services. Merchant Banking aids in the coordination of the operations of intermediaries involved in the issue of shares, such as registrars, advertising agencies, bankers, underwriters, brokers, and printers. It also assures that the capital market's laws and regulations are followed. ## 2.4: SCOPE OF FINTECH SERVICES FinTech, which combines the words "financial" and "technology," is a relatively new and somewhat complex phrase that refers to any emerging technology that enables consumers or financial institutions to supply financial services in newer, faster ways than previously possible. ### Scope of Fintech Services - Mobile app based services - Digital Lending and Credit - Mobile App Banking - Digital Wallet - Personal Financial Services - Online Trading - Insurtech - Tech infrastructure services - Banking-as-a-Service - Blockchain - Robo-Advisers - Payment Gateways - Regtech ### a. MOBILE APP-BASED SERVICES Mobile gadgets are continuing to reshape the world. Mobile apps, which influence our daily lives, activities, and even buying habits, are also laying the groundwork for rapid transformation in the finance and banking sectors. The following are various forms of mobile app-based financial services offered through fintech. | # | | |---|---| | 1 | Digital Credit | The phrase "digital lending" refers to the end-to-end management of credit products such as loans and credit cards via digital channels. To avail a business or personal loan, and do it quickly, all one needs is a smartphone or a computer with an internet connection. Customers no longer want to be restricted to certain hours when it comes to banking. Mobile banking apps are the banking industry's future. The new trend is to create mobile apps that allow consumers to connect with their accounts with ease and confidence. Businesses who take advantage of this trend will have no trouble finding customers | | 2 | Mobile App Banking | A digital wallet, often known as an e-wallet, uses an electronic device, internet service, or software application that allows one party to exchange digital currency units for products and services with another party. In simple words a mobile wallet is a way to carry cash in digital format. | | 3 | Digital Wallet | Fintechs are now accessible in various of forms to help people improve their personal finances. There are numerous online resources for obtaining financial support of any kind. ET Money, a fintech company, is an example of such an opportunity. | | 4 | Personal Financial Services | New-age trading platforms with smooth onboarding and trading experiences are now readily accessible. With a simple digital application form and Aadhaar-based eSIGN, a new Demat account may be opened in as little as two days on most of these platforms. | | 5 | Online Trading Apps | Insurtech refers to the advent of new technologies that are altering the insurance sector by lowering costs for both consumers and insurers, increasing efficiency, and boosting customer happiness. | | 6 | Insurtech | | ### B: TECH INFRASTRUCTURE SERVICES Different FinTechs have emerged as infrastructure suppliers in recent years. Fintechs in this capacity sell services to financial institutions not only to improve the end user experience or add more capabilities, but also to fundamentally change the way these financial providers offer their services, i.e., through digitalisation, and better manage risk. 1. Banking-as-a-Service/Platform (BaaS/P): Banking as a service (BaaS) enables non-banks to provide essential financial services to their consumers by collaborating with banks through application programming interfaces APIs. Non-banks such as fintech and even non-fintech companies develop products on top of traditional banking infrastructure. 2. Blockchain: The term "blockchain" is derived from two words: "block," which refers to digital data, and "chain," which refers to a public database. As a result, Blockchain refers to the storage of digital data in public databases. It's merely a series of blocks linked together. Blocks store information about transactions, including the time, date, and the amount of your purchase, as well as who is involved in the transaction and their identity. 3. Robo-Advisers: Robo advisers are digital financial advisors who use algorithms or mathematical formulas to deliver recommendations. Robo advisers provide low-cost financial advice to help you manage your portfolio and save time and money. 4. Payment Gateways: A payment gateway is the technology that receives and transports payment data from the customer to the acquirer before returning the payment acceptance or decline to the customer. A payment gateway securely validates the customer's card data, ensures money are available, and eventually allows businesses to be paid. 5. RegTech: A subset of fintech that focuses on technologies that enables more efficient and effective delivery of statutory requirements than present capabilities." In layman's terms, it refers to any technology that assures businesses meet their regulatory obligations. ## 2.5: CASHLESS BANKING India has traditionally been a cash-based economy. The government's decision to implement demonetisation, as well as the recent Covid epidemic, has mandated contactless payments and increased cashless banking. Demonetization may have failed to attain its stated goals like seizing all black money and undeclared assets, but it did disrupt life and economic activity. ## [A] BANKING CARDS Banking cards, such as debit and credit cards, are among the most widely used cashless payment systems worldwide. Banking cards provide numerous benefits such as secure payments, convenience, and many others. 1. Debit card: Debit cards are provided when you open an account at a bank. Debit cards are linked to a bank account and enable you to pay at both physical and online stores, as well as withdraw cash from branches or ATMs. 2. Credit card: The primary distinction between a debit card and a credit card is that when you use your debit card, the amount is deducted from your bank account. When you use a credit card, the amount is deducted from your pre-approved credit limit rather than your bank account. ## [B] MOBILE APPLICATION-BASED PAYMENT SYSTEM Because of their rapid, safe, and easy payment options, mobile wallet applications are increasingly gaining popularity. Mobile apps enable users to transfer, receive, and store money. By simply integrating his bank account, a user can add or save money in his wallet. - Open e-wallets: Banks are the only institutions authorised to issue & operate open wallets. Users with open wallets can use them for any transactions, including the purchase of products and services, as well as financial services such as money transfer at merchant locations or point-of-sale terminals that accept cards, and cash withdrawal at ATMs. - Semi closed e-wallets: A semi-closed wallet is issued by a fintech or by any payments company (non-bank entity). Using this type of app, a user can also transact with merchants that have a contract with the app company. Merchants need to sign contracts with the app company for accepting payments from the mobile wallets. - Closed e-wallets: A closed e-wallet is issued by a merchant to a consumer for buying goods and services exclusively on its platform. Cash withdrawal or redemption are not possible with these wallets. Closed wallets are available from companies like Flipkart.com, Jabong.com, and Makemytrip.com. ## [C] BHIM/UPI Based on the Unified Payments Interface, BHIM is an Indian mobile payment app developed by the National Payments Corporation of India. BHIM (Bharat Interface for Money) is a UPI-based platform that allows users to make secure, simple, and instant digital payments using your phone. The Unified Payments Interface (UPI) is a real-time payment system designed by the National Payments Corporation of India (NPCI) that allows for inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions. The Reserve Bank of India (RBI) regulates the interface, which works by immediately transferring payments between two bank accounts on a mobile platform. ## [D] QR CODES QR is an abbreviation for Quick Response. It is a two-dimensional code that consists of a pattern of black squares grouped on a square grid. Imaging devices, such as smartphone cameras, can scan QR codes. QR codes are extensively used for conducting cashless payments, in which a user just scans the merchant service QR code to complete the transaction. ## [E] CONTACTLESS PAYMENTS Contactless payment is a simple and safe technology that allows users to buy products by just tapping a card near a point-of-sale terminal. The card can simply be a debit, credit, or smart card based on NFC (near field communication) or RFID technology. Because contactless payments do not require a signature or a PIN, they are highly convenient. ## [G] ONLINE FUND TRANSFER There are several methods for transferring funds from one bank account to another. Here are the three most common methods of money transfer. - NEFT: The National Electronic Fund Transfer, or NEFT, is the most basic and widely used method of transferring money from one bank to another. - RTGS: RTGS is an abbreviation for Real-Time Gross Settlement. RTGS is a real-time funds transfer system based on the gross settlement principle, in which money is sent from one bank to another in real time. RTGS is primarily intended for high-value transactions. - IMPS: Immediate Payment Service (IMP) is a service that allows for instant financial transfers and can be used at any time. IMPS is simply the combination of NEFT and RTGS. ## [H] GIFT CARDS OR VOUCHERS Gift cards are also a convenient option to go cashless. It allows the recipient to use a voucher to purchase anything. There are also a number of stores that provide discounts on gift cards. ## [I] ATM ATMs, or Automated Teller Machines, are one of the most useful innovations in the banking industry. ATMs enable banking customers to do self-service activities such as cash withdrawal, deposit, and fund transfers in a timely manner. ## 2.6: FINANCIAL SERVICES OFFERED BY POST OFFICE Financial inclusion is thought to be a crucial driver of our ambition of a more inclusive society and economy. The banking sector has developed considerably in the post-liberalization period, keeping up with and, in some cases, outpacing the country's spectacular economic growth. In addition, from 1882, Indian post offices have provided banking services to all sections of the population. Indian post acted as a banker for Indian villages long before financial inclusion became a catchphrase, and Indian post claims to be the country's first financial inclusion pioneer. The Post Office Savings Bank is the country's oldest and largest banking institution, covering both urban and rural customers' investment needs. These services are provided as an agency service for the Government of India's Ministry of Finance. Customers can choose from a variety of products to meet their investing needs. ### Products & Services by Post offices in India - Postal Services - Post Office Saving Schemes - Money Remittance Services - Mutual Funds - Postal Life Insurance (PLI) Services - Jansuraksha Scheme - India Post Payments Bank The telephone, email, mobile, messaging apps, and social media have all surpassed the post office as a communication channel, but the post office remains vital in the country due to its high-return savings schemes and accessibility. Over time, the postal service has expanded beyond its original role of transporting letters. The need for the importance of India Post in our lives comes from its wide range of services to Indian citizens. ## 2.7: CREDIT RATING FOR INDIVIDUALS In today's world, both individuals and businesses rely heavily on credit. The entire credit application process is based on credit scores. For the availability of loans and credit, a strong credit score is required. ### HOW IS CREDIT SCORE CALCULATED? To calculate credit scores, each credit bureau uses its own methodology. It is determined after a number of factors are taken into account. These factors are classified into high impact & low impact factors. | High impact factors | Credit Score | Medium impact factors | Low impact factors | |---|---|---|---| | Payment History | | | | | Credit Utilisation Ratio | | | | | Soft credit enquiry | | | | | | | Age of the Credit| Hard credit enquiry| | | | | Number of credit accounts| | | | | Soft credit enquiry| 1. **Payment History** Payment history is one of the most important variables influencing your credit score. If you have been consistent in paying your bills/loan EMIs, it indicates that you are a responsible borrower who is less likely to default. Responsible credit behaviour will also qualify you for lower interest rates on loans and faster acceptance on your applications. Making late or missed payments, for example, will reduce your credit score by many points. 2. **Credit Utilisation Ratio** Credit usage is the second most important component influencing your credit score. A credit utilisation ratio is the entire amount of credit you have utilised in relation to the total amount of credit available to you. The credit utilisation ratio is derived by dividing the total outstanding debt by the total credit limit. To keep a high credit score, experts recommend that people spend only 30-40% of their credit limit. 3. **Age/duration of credit** When calculating your credit score, your credit history is also taken into account in order to properly analyse your creditworthiness. A long credit history assists lenders in making an informed choice about whether or not to extend credit to you. The older your loan or credit card, the better for your credit score it is. It demonstrates that you have utilised credit responsibly over time by repaying your debts on schedule. 4. **Number of credit accounts** Your credit score is also affected by the structure of your loan portfolio, or the mix of secured and unsecured loans in your borrowings. This has little impact on your overall score. Having several types of credit, whether secured or unsecured, might contribute to a higher credit score. You should avoid borrowing only one type of credit in significant amounts because it may harm your credit score. 5. **Credit inquiries** When you apply for a new credit card or loan, or try to refinance an existing loan, the new lender performs a credit check. Each of these checks has the potential to reduce your score marginally. It depends on the nature of the inquiry. There are two kinds of enquiries: hard enquiry and soft enquiry. - **Soft enquiry:** A soft enquiry is one that is made by an individual. This will have no effect on your credit score. You can also obtain a free credit score. - **Hard enquiry:** When a financial institution investigates your credit score to make a decision on your credit application, this is referred to