NCERT Textbook: Financial Management and Planning | Home Science for Class 11 - Humanities/Arts PDF Download

 Page 1


187
UNIT IV 
Adulthood With the advent of adulthood, the adolescent 
passes through the portals of what may be 
termed as the “real world”. One enters the world 
of higher education, work, and marriage, and 
gets involved in establishing one’s own family. 
Hence responsibilities of the individual increase 
manifold. In this unit you will learn about the 
major factors that play a role in determining 
the quality of adult life, these being, financial 
planning and management, maintenance of 
fabrics and apparel that one uses personally as 
well as in the home.
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187
UNIT IV 
Adulthood With the advent of adulthood, the adolescent 
passes through the portals of what may be 
termed as the “real world”. One enters the world 
of higher education, work, and marriage, and 
gets involved in establishing one’s own family. 
Hence responsibilities of the individual increase 
manifold. In this unit you will learn about the 
major factors that play a role in determining 
the quality of adult life, these being, financial 
planning and management, maintenance of 
fabrics and apparel that one uses personally as 
well as in the home.
unit_4_as_26_7_09_magenta-Final.indd (M).indd   187 2/9/2023   12:04:39
2024-25
Human Ecology and Family Sciences
188
10
Financial 
Management 
and Planning
Learning Objectives 
After completing this chapter the learner is able to —
•	 understand 	 the 	 meaning 	 and 	 concept 	 of 	 financial 	 management.
•	 know 	 the 	 dif fer ent	 types	of	income.	
•	 explain 	 the 	steps	in 	making	 family 	 budgets.
•	 describe 	meaning	of 	savings 	 and	 investment s. 	
•	 discuss 	 the 	principles 	of	sound 	investments.
10.1 Introduction
(i) Financial management	 in	 the	 context 	 of 	 a 	 family	 simply 	 means	
management	 of	 finances. 	 Finances 	 ar e	 all	 types 	 of 	 income	 available	 to	
a	 family	 which	 include 	 salary, 	 wages, 	 r ent, 	 inter est, 	 dividends,	 bonus,	
r etir ement	 benefits 	 and 	 all 	 other	 for ms 	 of 	 monetary 	 r eceipts.	 Planning,	
contr olling	 and 	 evaluating	 the	 use	 of 	 all	 these	 types	 of 	 incomes	 is	
called 	 financial	 management.	 Its	 purpose	 is	 to 	 give 	 the	 family	 gr eatest 	
satisfaction 	fr om	 the 	 r esour ces 	 at	hand. 	
	 	 The 	 quality 	 of 	 living	 that	 can 	 be 	 exchanged	 for	 financial 	 r esour ces	
is	 dependent 	 not	 only	 on 	 how	 much 	 income	 is	 available, 	 but	 mor e	
importantly 	 on	 the	 r egularity 	 and	 stability	 of 	 income.	 Ther efor e, 	 it	 is	
important	 to	 lear n	 the	 skill 	 of	 managing 	 money 	 as	 a	 r esour ce.	 This 	
chapter	 will 	 deal 	 with 	 the 	 types 	 of	 family	 income,	 management	 of	
income 	 and 	 the 	steps	in 	making 	 family	budgets.		
(ii) Financial planning	 is 	 a	 component 	 of 	 financial	 management. 	 The	 ter m	
budget 	 is	 often	 used	 for 	 the 	 planning 	 stage	 in	 financial 	 management.	
When	 families 	 make	 budgets, 	 they 	 see 	 to	 it	 that	 the	 family	 income	
is 	 used	 in 	 a	 manner 	 that	 fulfills	 all	 the 	 pr esent	 needs	 of 	 the	 family 	
members 	 and	 also	 takes 	 car e	 of	 the 	 long 	 ter m 	 goals	 of	 the	 family.	 Thus 	
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187
UNIT IV 
Adulthood With the advent of adulthood, the adolescent 
passes through the portals of what may be 
termed as the “real world”. One enters the world 
of higher education, work, and marriage, and 
gets involved in establishing one’s own family. 
Hence responsibilities of the individual increase 
manifold. In this unit you will learn about the 
major factors that play a role in determining 
the quality of adult life, these being, financial 
planning and management, maintenance of 
fabrics and apparel that one uses personally as 
well as in the home.
unit_4_as_26_7_09_magenta-Final.indd (M).indd   187 2/9/2023   12:04:39
2024-25
Human Ecology and Family Sciences
188
10
Financial 
Management 
and Planning
Learning Objectives 
After completing this chapter the learner is able to —
•	 understand 	 the 	 meaning 	 and 	 concept 	 of 	 financial 	 management.
•	 know 	 the 	 dif fer ent	 types	of	income.	
•	 explain 	 the 	steps	in 	making	 family 	 budgets.
•	 describe 	meaning	of 	savings 	 and	 investment s. 	
•	 discuss 	 the 	principles 	of	sound 	investments.
10.1 Introduction
(i) Financial management	 in	 the	 context 	 of 	 a 	 family	 simply 	 means	
management	 of	 finances. 	 Finances 	 ar e	 all	 types 	 of 	 income	 available	 to	
a	 family	 which	 include 	 salary, 	 wages, 	 r ent, 	 inter est, 	 dividends,	 bonus,	
r etir ement	 benefits 	 and 	 all 	 other	 for ms 	 of 	 monetary 	 r eceipts.	 Planning,	
contr olling	 and 	 evaluating	 the	 use	 of 	 all	 these	 types	 of 	 incomes	 is	
called 	 financial	 management.	 Its	 purpose	 is	 to 	 give 	 the	 family	 gr eatest 	
satisfaction 	fr om	 the 	 r esour ces 	 at	hand. 	
	 	 The 	 quality 	 of 	 living	 that	 can 	 be 	 exchanged	 for	 financial 	 r esour ces	
is	 dependent 	 not	 only	 on 	 how	 much 	 income	 is	 available, 	 but	 mor e	
importantly 	 on	 the	 r egularity 	 and	 stability	 of 	 income.	 Ther efor e, 	 it	 is	
important	 to	 lear n	 the	 skill 	 of	 managing 	 money 	 as	 a	 r esour ce.	 This 	
chapter	 will 	 deal 	 with 	 the 	 types 	 of	 family	 income,	 management	 of	
income 	 and 	 the 	steps	in 	making 	 family	budgets.		
(ii) Financial planning	 is 	 a	 component 	 of 	 financial	 management. 	 The	 ter m	
budget 	 is	 often	 used	 for 	 the 	 planning 	 stage	 in	 financial 	 management.	
When	 families 	 make	 budgets, 	 they 	 see 	 to	 it	 that	 the	 family	 income	
is 	 used	 in 	 a	 manner 	 that	 fulfills	 all	 the 	 pr esent	 needs	 of 	 the	 family 	
members 	 and	 also	 takes 	 car e	 of	 the 	 long 	 ter m 	 goals	 of	 the	 family.	 Thus 	
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families 	 ar e	 able	 to	 achieve	 their 	 objectives	 by 	 optimising	 the 	 use	 of 	 their	
r esour ces. 	 In	 addition, 	 financial 	 planning	 minimises	 wastage	 of	 money	
on 	 non-essentials, 	 thus	 making	 families	 save 	 a 	 part 	 of 	 their	 income	
for	 futur e 	 use.	 This 	 is,	 however , 	 possible	 when	 the	 family	 monitors 	 its 	
financial 	 plans	 and	 evaluates 	 the 	 plans 	 fr om	 time 	 to	 time.	 Commitment 	
of 	 family 	 members 	 towar ds	 the 	 success 	 of 	 the	 financial 	 plan	 is	 very	
important 	for 	 it 	 to	 show	any	r esults.	
  Management 	 is	 using 	 what 	 you 	 have	 (r esour ces) 	 to 	 achieve 	 what 	
you 	 want 	 (goals 	 and 	 objectives).	 Family	 r esour ces 	 ar e	 the 	 r esour ces	
that	 ar e 	 available 	 to 	 the 	 individual	 or	 the	 family	 at	 a	 particular	 time,	
which 	 help	 them	 r each 	 their 	 family	 goals.	 Family 	 r esour ces	 include 	
human 	 r esour ces 	 such 	 as 	 knowledge,	 skills,	 health,	 time	 and	 ener gy;	
material 	 r esour ces 	 such	 as	 housing,	 money	 and	 investments;	 and	
community 	 r esour ces	 such 	 as	 the	 library,	 parks,	 community	 centr es, 	
hospitals, 	 etc.	 In	 or der	 to 	 ensur e	 maximum	 utilisation 	 of 	 r esour ces	 it	
is 	important 	to	manage	 them	well.	
	 	 A 	 family	 is	 a 	 consumption	 unit	 while 	 being 	 a	 social	 unit,	 and	 its	
purpose 	 is 	 to	 manage	 the	 finances	 of	 the 	 family	 for 	 the 	 well-being	 of 	
its	 members. 	 Money	 is 	 one	 of	 the	 important 	 family	 r esour ces.	 A 	 family	
cannot 	 lead	 a 	 comfortable	 life	 without 	 suf ficient	 money. 	 Managing 	
money 	 ef fectively	 to	 meet	 pr esent	 needs 	 and 	 futur e 	 goals	 is	 a 	 lear ned 	
skill.	 So 	let	us	understand	what	we 	mean	by	family	income.
10.2 Family Income 
Family	 income 	 means 	 the 	 sum	 total	 of	 the 	 income	 of	 all 	 types 	 and 	 fr om	
all	 sour ces 	 of	 all	 the	 family	 members	 in	 a	 given	 time 	 period.	 It 	 can 	 be	
annual, 	 monthly, 	 weekly	 or	 daily	 income.	 However ,	 for	 of ficial 	 purposes,	 it	
is	 consider ed 	 as	 the 	 annual 	 income	 in	 a	 financial 	 year	 which 	 is	 generally	
fr om	1st	 April	 to 	31st	Mar ch 	of 	the 	 next	year .
Income	 may	 be 	in	 the	for m	 of 	
•	 W ages
•	 Salary
•	 Pr ofits 	 fr om	business
•	 Commissions 	
•	 Rent 	 fr om 	pr operties
•	 Inter est 	on	 cash	loans
•	 Dividends 	
•	 Pensions 	
•	 Gifts 	
•	 Royalties
•	 T ips	and 	donations	
•	 Bonus
•	 Subsidies, 	 Charities,	etc.
Participate in a group discussion in your 
class on “Communication Technology – a 
curse or a boon?” 
Activity 1
Financial Management and Planning
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187
UNIT IV 
Adulthood With the advent of adulthood, the adolescent 
passes through the portals of what may be 
termed as the “real world”. One enters the world 
of higher education, work, and marriage, and 
gets involved in establishing one’s own family. 
Hence responsibilities of the individual increase 
manifold. In this unit you will learn about the 
major factors that play a role in determining 
the quality of adult life, these being, financial 
planning and management, maintenance of 
fabrics and apparel that one uses personally as 
well as in the home.
unit_4_as_26_7_09_magenta-Final.indd (M).indd   187 2/9/2023   12:04:39
2024-25
Human Ecology and Family Sciences
188
10
Financial 
Management 
and Planning
Learning Objectives 
After completing this chapter the learner is able to —
•	 understand 	 the 	 meaning 	 and 	 concept 	 of 	 financial 	 management.
•	 know 	 the 	 dif fer ent	 types	of	income.	
•	 explain 	 the 	steps	in 	making	 family 	 budgets.
•	 describe 	meaning	of 	savings 	 and	 investment s. 	
•	 discuss 	 the 	principles 	of	sound 	investments.
10.1 Introduction
(i) Financial management	 in	 the	 context 	 of 	 a 	 family	 simply 	 means	
management	 of	 finances. 	 Finances 	 ar e	 all	 types 	 of 	 income	 available	 to	
a	 family	 which	 include 	 salary, 	 wages, 	 r ent, 	 inter est, 	 dividends,	 bonus,	
r etir ement	 benefits 	 and 	 all 	 other	 for ms 	 of 	 monetary 	 r eceipts.	 Planning,	
contr olling	 and 	 evaluating	 the	 use	 of 	 all	 these	 types	 of 	 incomes	 is	
called 	 financial	 management.	 Its	 purpose	 is	 to 	 give 	 the	 family	 gr eatest 	
satisfaction 	fr om	 the 	 r esour ces 	 at	hand. 	
	 	 The 	 quality 	 of 	 living	 that	 can 	 be 	 exchanged	 for	 financial 	 r esour ces	
is	 dependent 	 not	 only	 on 	 how	 much 	 income	 is	 available, 	 but	 mor e	
importantly 	 on	 the	 r egularity 	 and	 stability	 of 	 income.	 Ther efor e, 	 it	 is	
important	 to	 lear n	 the	 skill 	 of	 managing 	 money 	 as	 a	 r esour ce.	 This 	
chapter	 will 	 deal 	 with 	 the 	 types 	 of	 family	 income,	 management	 of	
income 	 and 	 the 	steps	in 	making 	 family	budgets.		
(ii) Financial planning	 is 	 a	 component 	 of 	 financial	 management. 	 The	 ter m	
budget 	 is	 often	 used	 for 	 the 	 planning 	 stage	 in	 financial 	 management.	
When	 families 	 make	 budgets, 	 they 	 see 	 to	 it	 that	 the	 family	 income	
is 	 used	 in 	 a	 manner 	 that	 fulfills	 all	 the 	 pr esent	 needs	 of 	 the	 family 	
members 	 and	 also	 takes 	 car e	 of	 the 	 long 	 ter m 	 goals	 of	 the	 family.	 Thus 	
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families 	 ar e	 able	 to	 achieve	 their 	 objectives	 by 	 optimising	 the 	 use	 of 	 their	
r esour ces. 	 In	 addition, 	 financial 	 planning	 minimises	 wastage	 of	 money	
on 	 non-essentials, 	 thus	 making	 families	 save 	 a 	 part 	 of 	 their	 income	
for	 futur e 	 use.	 This 	 is,	 however , 	 possible	 when	 the	 family	 monitors 	 its 	
financial 	 plans	 and	 evaluates 	 the 	 plans 	 fr om	 time 	 to	 time.	 Commitment 	
of 	 family 	 members 	 towar ds	 the 	 success 	 of 	 the	 financial 	 plan	 is	 very	
important 	for 	 it 	 to	 show	any	r esults.	
  Management 	 is	 using 	 what 	 you 	 have	 (r esour ces) 	 to 	 achieve 	 what 	
you 	 want 	 (goals 	 and 	 objectives).	 Family	 r esour ces 	 ar e	 the 	 r esour ces	
that	 ar e 	 available 	 to 	 the 	 individual	 or	 the	 family	 at	 a	 particular	 time,	
which 	 help	 them	 r each 	 their 	 family	 goals.	 Family 	 r esour ces	 include 	
human 	 r esour ces 	 such 	 as 	 knowledge,	 skills,	 health,	 time	 and	 ener gy;	
material 	 r esour ces 	 such	 as	 housing,	 money	 and	 investments;	 and	
community 	 r esour ces	 such 	 as	 the	 library,	 parks,	 community	 centr es, 	
hospitals, 	 etc.	 In	 or der	 to 	 ensur e	 maximum	 utilisation 	 of 	 r esour ces	 it	
is 	important 	to	manage	 them	well.	
	 	 A 	 family	 is	 a 	 consumption	 unit	 while 	 being 	 a	 social	 unit,	 and	 its	
purpose 	 is 	 to	 manage	 the	 finances	 of	 the 	 family	 for 	 the 	 well-being	 of 	
its	 members. 	 Money	 is 	 one	 of	 the	 important 	 family	 r esour ces.	 A 	 family	
cannot 	 lead	 a 	 comfortable	 life	 without 	 suf ficient	 money. 	 Managing 	
money 	 ef fectively	 to	 meet	 pr esent	 needs 	 and 	 futur e 	 goals	 is	 a 	 lear ned 	
skill.	 So 	let	us	understand	what	we 	mean	by	family	income.
10.2 Family Income 
Family	 income 	 means 	 the 	 sum	 total	 of	 the 	 income	 of	 all 	 types 	 and 	 fr om	
all	 sour ces 	 of	 all	 the	 family	 members	 in	 a	 given	 time 	 period.	 It 	 can 	 be	
annual, 	 monthly, 	 weekly	 or	 daily	 income.	 However ,	 for	 of ficial 	 purposes,	 it	
is	 consider ed 	 as	 the 	 annual 	 income	 in	 a	 financial 	 year	 which 	 is	 generally	
fr om	1st	 April	 to 	31st	Mar ch 	of 	the 	 next	year .
Income	 may	 be 	in	 the	for m	 of 	
•	 W ages
•	 Salary
•	 Pr ofits 	 fr om	business
•	 Commissions 	
•	 Rent 	 fr om 	pr operties
•	 Inter est 	on	 cash	loans
•	 Dividends 	
•	 Pensions 	
•	 Gifts 	
•	 Royalties
•	 T ips	and 	donations	
•	 Bonus
•	 Subsidies, 	 Charities,	etc.
Participate in a group discussion in your 
class on “Communication Technology – a 
curse or a boon?” 
Activity 1
Financial Management and Planning
unit_4_as_26_7_09_magenta-Final.indd (M).indd   189 2/9/2023   12:04:41
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Human Ecology and Family Sciences
190
Types of family income
Ther e 	 ar e 	 thr ee 	types	 of	family	 income.
Befor e 	 we 	 go	 into	 the	 details	 of	 dif fer ent	 types	 of	 family	 income,	 let	 us	
understand	what 	is	 money 	 and	its	functions.
Money 	is 	what 	money	does.	Two	 most	important 	functions	of	 money	 ar e:
•	 Serving 	as	a	 medium	of	 exchange,	and 	
•	 Measur ement	of	value
Thus 	 money	 is	 “anything	 which 	 is	 generally	 acceptable 	 in	 exchange	
of 	 commodities 	 and	 in	 ter ms 	 of	 which	 the	 value	 of	 other 	 commodities	 is	
deter mined”. 	
Importance of money
•	 Money	 serves 	 as	 a 	 medium	 of 	 exchange,	 thus	 doing 	 away	 with 	 the	
pr oblems	of	spending	time	for	 exchange	to	materialise.
•	 Money 	 serves	 as 	 a 	 standar d 	 of	 value, 	 i.e.,	 a	 common	 denominator	 in	
ter ms	of 	which	the	 value	of	all	other	 commodities 	 is	expr essed.	
•	 It	 works 	 as	 a	 standar d 	 of 	 deferr ed	 payments	 facilitating	 savings	 and	
investments,	 which	 ar e	 the	 basis	 for 	 capital 	 for mation,	 and	 hence	 for	
better	 standar d	of 	living.
•	 Storage	 in	 ter ms 	 of	 money	 is	 durable 	 for	 long	 time	 periods,	 facilitating	
accumulation	 for	 investment	 in	 pr oduction	 and	 impr oved	 standar d	 of	
living	for 	the	family.	
Money
Income
Psychic
Income
Real
Income
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187
UNIT IV 
Adulthood With the advent of adulthood, the adolescent 
passes through the portals of what may be 
termed as the “real world”. One enters the world 
of higher education, work, and marriage, and 
gets involved in establishing one’s own family. 
Hence responsibilities of the individual increase 
manifold. In this unit you will learn about the 
major factors that play a role in determining 
the quality of adult life, these being, financial 
planning and management, maintenance of 
fabrics and apparel that one uses personally as 
well as in the home.
unit_4_as_26_7_09_magenta-Final.indd (M).indd   187 2/9/2023   12:04:39
2024-25
Human Ecology and Family Sciences
188
10
Financial 
Management 
and Planning
Learning Objectives 
After completing this chapter the learner is able to —
•	 understand 	 the 	 meaning 	 and 	 concept 	 of 	 financial 	 management.
•	 know 	 the 	 dif fer ent	 types	of	income.	
•	 explain 	 the 	steps	in 	making	 family 	 budgets.
•	 describe 	meaning	of 	savings 	 and	 investment s. 	
•	 discuss 	 the 	principles 	of	sound 	investments.
10.1 Introduction
(i) Financial management	 in	 the	 context 	 of 	 a 	 family	 simply 	 means	
management	 of	 finances. 	 Finances 	 ar e	 all	 types 	 of 	 income	 available	 to	
a	 family	 which	 include 	 salary, 	 wages, 	 r ent, 	 inter est, 	 dividends,	 bonus,	
r etir ement	 benefits 	 and 	 all 	 other	 for ms 	 of 	 monetary 	 r eceipts.	 Planning,	
contr olling	 and 	 evaluating	 the	 use	 of 	 all	 these	 types	 of 	 incomes	 is	
called 	 financial	 management.	 Its	 purpose	 is	 to 	 give 	 the	 family	 gr eatest 	
satisfaction 	fr om	 the 	 r esour ces 	 at	hand. 	
	 	 The 	 quality 	 of 	 living	 that	 can 	 be 	 exchanged	 for	 financial 	 r esour ces	
is	 dependent 	 not	 only	 on 	 how	 much 	 income	 is	 available, 	 but	 mor e	
importantly 	 on	 the	 r egularity 	 and	 stability	 of 	 income.	 Ther efor e, 	 it	 is	
important	 to	 lear n	 the	 skill 	 of	 managing 	 money 	 as	 a	 r esour ce.	 This 	
chapter	 will 	 deal 	 with 	 the 	 types 	 of	 family	 income,	 management	 of	
income 	 and 	 the 	steps	in 	making 	 family	budgets.		
(ii) Financial planning	 is 	 a	 component 	 of 	 financial	 management. 	 The	 ter m	
budget 	 is	 often	 used	 for 	 the 	 planning 	 stage	 in	 financial 	 management.	
When	 families 	 make	 budgets, 	 they 	 see 	 to	 it	 that	 the	 family	 income	
is 	 used	 in 	 a	 manner 	 that	 fulfills	 all	 the 	 pr esent	 needs	 of 	 the	 family 	
members 	 and	 also	 takes 	 car e	 of	 the 	 long 	 ter m 	 goals	 of	 the	 family.	 Thus 	
unit_4_as_26_7_09_magenta-Final.indd (M).indd   188 2/9/2023   12:04:41
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189
families 	 ar e	 able	 to	 achieve	 their 	 objectives	 by 	 optimising	 the 	 use	 of 	 their	
r esour ces. 	 In	 addition, 	 financial 	 planning	 minimises	 wastage	 of	 money	
on 	 non-essentials, 	 thus	 making	 families	 save 	 a 	 part 	 of 	 their	 income	
for	 futur e 	 use.	 This 	 is,	 however , 	 possible	 when	 the	 family	 monitors 	 its 	
financial 	 plans	 and	 evaluates 	 the 	 plans 	 fr om	 time 	 to	 time.	 Commitment 	
of 	 family 	 members 	 towar ds	 the 	 success 	 of 	 the	 financial 	 plan	 is	 very	
important 	for 	 it 	 to	 show	any	r esults.	
  Management 	 is	 using 	 what 	 you 	 have	 (r esour ces) 	 to 	 achieve 	 what 	
you 	 want 	 (goals 	 and 	 objectives).	 Family	 r esour ces 	 ar e	 the 	 r esour ces	
that	 ar e 	 available 	 to 	 the 	 individual	 or	 the	 family	 at	 a	 particular	 time,	
which 	 help	 them	 r each 	 their 	 family	 goals.	 Family 	 r esour ces	 include 	
human 	 r esour ces 	 such 	 as 	 knowledge,	 skills,	 health,	 time	 and	 ener gy;	
material 	 r esour ces 	 such	 as	 housing,	 money	 and	 investments;	 and	
community 	 r esour ces	 such 	 as	 the	 library,	 parks,	 community	 centr es, 	
hospitals, 	 etc.	 In	 or der	 to 	 ensur e	 maximum	 utilisation 	 of 	 r esour ces	 it	
is 	important 	to	manage	 them	well.	
	 	 A 	 family	 is	 a 	 consumption	 unit	 while 	 being 	 a	 social	 unit,	 and	 its	
purpose 	 is 	 to	 manage	 the	 finances	 of	 the 	 family	 for 	 the 	 well-being	 of 	
its	 members. 	 Money	 is 	 one	 of	 the	 important 	 family	 r esour ces.	 A 	 family	
cannot 	 lead	 a 	 comfortable	 life	 without 	 suf ficient	 money. 	 Managing 	
money 	 ef fectively	 to	 meet	 pr esent	 needs 	 and 	 futur e 	 goals	 is	 a 	 lear ned 	
skill.	 So 	let	us	understand	what	we 	mean	by	family	income.
10.2 Family Income 
Family	 income 	 means 	 the 	 sum	 total	 of	 the 	 income	 of	 all 	 types 	 and 	 fr om	
all	 sour ces 	 of	 all	 the	 family	 members	 in	 a	 given	 time 	 period.	 It 	 can 	 be	
annual, 	 monthly, 	 weekly	 or	 daily	 income.	 However ,	 for	 of ficial 	 purposes,	 it	
is	 consider ed 	 as	 the 	 annual 	 income	 in	 a	 financial 	 year	 which 	 is	 generally	
fr om	1st	 April	 to 	31st	Mar ch 	of 	the 	 next	year .
Income	 may	 be 	in	 the	for m	 of 	
•	 W ages
•	 Salary
•	 Pr ofits 	 fr om	business
•	 Commissions 	
•	 Rent 	 fr om 	pr operties
•	 Inter est 	on	 cash	loans
•	 Dividends 	
•	 Pensions 	
•	 Gifts 	
•	 Royalties
•	 T ips	and 	donations	
•	 Bonus
•	 Subsidies, 	 Charities,	etc.
Participate in a group discussion in your 
class on “Communication Technology – a 
curse or a boon?” 
Activity 1
Financial Management and Planning
unit_4_as_26_7_09_magenta-Final.indd (M).indd   189 2/9/2023   12:04:41
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Human Ecology and Family Sciences
190
Types of family income
Ther e 	 ar e 	 thr ee 	types	 of	family	 income.
Befor e 	 we 	 go	 into	 the	 details	 of	 dif fer ent	 types	 of	 family	 income,	 let	 us	
understand	what 	is	 money 	 and	its	functions.
Money 	is 	what 	money	does.	Two	 most	important 	functions	of	 money	 ar e:
•	 Serving 	as	a	 medium	of	 exchange,	and 	
•	 Measur ement	of	value
Thus 	 money	 is	 “anything	 which 	 is	 generally	 acceptable 	 in	 exchange	
of 	 commodities 	 and	 in	 ter ms 	 of	 which	 the	 value	 of	 other 	 commodities	 is	
deter mined”. 	
Importance of money
•	 Money	 serves 	 as	 a 	 medium	 of 	 exchange,	 thus	 doing 	 away	 with 	 the	
pr oblems	of	spending	time	for	 exchange	to	materialise.
•	 Money 	 serves	 as 	 a 	 standar d 	 of	 value, 	 i.e.,	 a	 common	 denominator	 in	
ter ms	of 	which	the	 value	of	all	other	 commodities 	 is	expr essed.	
•	 It	 works 	 as	 a	 standar d 	 of 	 deferr ed	 payments	 facilitating	 savings	 and	
investments,	 which	 ar e	 the	 basis	 for 	 capital 	 for mation,	 and	 hence	 for	
better	 standar d	of 	living.
•	 Storage	 in	 ter ms 	 of	 money	 is	 durable 	 for	 long	 time	 periods,	 facilitating	
accumulation	 for	 investment	 in	 pr oduction	 and	 impr oved	 standar d	 of	
living	for 	the	family.	
Money
Income
Psychic
Income
Real
Income
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Financial Management and Planning
(a) Money  Income 	 is	 the	 pur c-
hasing 	 power	 in 	 rupees 	 and	
paisa 	 that 	 goes	 into	 the 	 family 	
tr easury 	 in	 a 	 given	 period 	 of 	
time. 	 It 	 comes 	 to	 the 	 family	
in 	 the 	 for m 	 of	 wages, 	 salary, 	
bonus, 	 commission,	 r ent, 	 dividends,	 inter est, 	 r etir ement 	 income,	
r oyalties 	 and	 any	 other 	 allowances	 to	 any 	 member	 of	 the 	 family.	 Money	
income 	 is	 converted 	 into	 goods	 and	 services 	 r equir ed 	 for	 daily 	 living, 	 and 	
often 	 a 	 part 	 is	 diverted 	 into	 savings	 for 	 delayed 	 use	 or	 for	 investment	
purposes. 	
	 	 The 	 fr equency 	 and	 patter n 	 of	 flow	 of	 money 	 income	 varies	 fr om 	
family 	 to	 family.	 For 	 example	 in	 rural 	 ar eas	 agricultur e 	 is 	 the 	 main	
occupation. 	 The	 income	 of 	 a	 far mer	 is	 not	 r egular 	 but	 she/he	 ear ns 	
money 	 when 	 she/he	 sells	 the 	 cr op 	 which	 may	 be	 twice	 in	 a 	 year–the	
rabi	 and 	 the	 kharif 	 cr ops. 	 In	 contrast, 	 a	 person 	 having	 a 	 job	 will	 have	
r egular 	 income 	every	 month.
(b) Real Income 	 is	 defined	 by	 economists	 as	 a	 flow 	 of 	 commodities	 and	
services 	 available 	 for	 satisfaction	 of	 human	 wants	 and	 needs	 over	 a 	
given 	period 	 of 	 time. 	
This	 definition 	has 	 thr ee 	important	 points,	namely:
•	 Real 	 income	is	a 	flow	of 	 goods 	 and	services,	it	is 	not 	stagnant.
•	 It 	 consists	 of 	 goods 	 and	 services	 which	 might	 or	 might 	 not 	 be	
available 	 with 	 money,	 e.g.,	 pr oduce	 fr om 	 your 	 own	 land,	 services	
of 	 a	household.
•	 Ther e 	 is 	a	 time	period 	 involved	–	 it 	 may 	 be	a	month	or	a 	year .	
Real	 income 	 is	of	 two	types-	 dir ect 	 income	and 	indir ect 	 income
1.	 Dir ect 	 Income 	 –	 consists	 of	 those	 goods 	 and	 services 	 available	
to 	 the 	 family 	 members	 without 	 the	 use 	 of	 money. 	 For 	 example, 	
services 	 r ender ed	 by	 family	 members, 	 like	 cooking,	 laundering, 	
stitching, 	 maintaining	 kitchen	 gar den, 	 etc. 	 A	 house 	 which	 is	 fully 	
paid 	 for 	 and	 community 	 facilities 	 like	 parks, 	 r oads,	 libraries	 also	
come 	 under	dir ect	 income.
2.	 Indir ect 	 Income 	 –	 those 	 material	 goods 	 and	 services	 which 	 ar e 	
available 	 to	 the	 family	 only 	 after	 some 	 means 	 of	 exchange 	 (or dinarily	
money) 	 has	 been	 obtained, 	 e.g., 	 use 	 of	 money	 to	 buy 	 good 	 quality 	
vegetables 	because	 it 	 involves 	one’s	skill 	and	 abilit y 	to 	select. 	
(c) Psychic Income 	 is	 the	 satisfaction	 that	 r esults	 fr om 	 the 	 ownership 	
and	 utilisation 	 of	 goods	 and	 services.	 It 	 can 	 also	 be 	 defined 	 as 	 the	
satisfaction 	 derived 	 fr om	 r eal 	 income.	 It	 is	 dif ficult	 to 	 quantify 	 psychic	
income 	 in	 ter ms	 of 	 rupees.	 It 	 is	 a	 for m 	 of	 hidden 	 income.	 It	 is	 intangible	
and 	 subjective 	and	 the 	 most	 important	 in	ter ms 	of	 quality	of	 living.
Identify all the sources of money income 
available to your family in a month. 
Activity 2
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