P. Sudha

epgp books










The first contact for every individual in this world is his family. This individual finds relaxation, opportunity for self-expression and happy group living while living in a home as a member of the family. The family is the most important part of a man’s environment. Man, along with his heredity, lives in midst of a three- dimensional environment, namely natural, human and technological. There is a continuous interaction between the individual and his environment throughout his life. So it is important to examine and understand the structure of the family in the modern setting. In order to form a background for the study of management problems, a family encounters in the use of resources at the various stages of life cycle. Among the resources money is one of the important resource. Effective money management involves decisions to be made in a manner so as to keep aside certain amount of money from the present income for future consumption. Thus, savings and investment form an important component of a family budget. In this module We will discuss types of savings and investment, concept, stages, recent trends of family life cycle and management of resources.



  • Requirement and availability of resources at various stages of family life cycle.
  •  To understand the individuals life and the changing pattern of family life.
  •  Reduce economic insecurity especially in old stage
  • Help in period of physical inability
  •  Useful during an emergency.


Types of savings and investment


The term savings means refraining from spending for consumption needs. Saving is very important from the National point of view. Savings are directly proportional to investment. Savings can be defined as abstinence from present consumption for the purpose of future consumption.


Savings = Income – Expenditure


Types of Savings

  • Provident fund scheme
  • Post office savings
  •  Banks
  •  Deposit Accounts
  •   Life Insurance Schemes
  • Public Provident fund
  • Unit Trust of India


Savings can be categorized into compulsory savings and voluntary savings. Compulsorysavings are those that individuals and institutions are compelled to make in order to satisfy permanent regulations. The provident fund schemes and pension fund schemes are the most familiar ones.


Provident Fund


The Provident Fund scheme is a plan for providing a lump B-a benefit at the time of retirement or death. In the case of death the family member nominated gets the amount. Under the scheme the employee contributes monthly a certain percentage of his income (10%) and the employers contribute matching amount.


The employee can even borrow money against the sum accumulated upto a certain percentage, for specific types of expenditure such as marriage or building a house. The money is recovered in a limited number of instalments. The Pension Scheme is different from the provident fund in that the amount is paid as lump sum, but paid each month after retirement. The rate of pension depends on the basic pay last drawn by the employee at the time of retirement. Apart from pension and provident fund a third type of retirement benefit available is gratuity. Under this, employees of certain organizations or institutions get as lump sum (1-5 times last pay drawn) at the end of their service (or death) after a specified minimum period of service (10 or m 15 years). The employee does not contribute anything towards1 gratuity. Post Office Savings


These are one of the oldest savings institutions in the country, having been established over 150 years ago. Savings in post offices are safe since the amounts are guaranteed by the state. Further, post offices offer also facilities of a making cumulative time deposits and recurring deposits, Cumulative Time Deposits a fixed amount is paid into the Post office savings banks every month for a period of 10 years and the accumulated principal and interest is paid at the end. Recurring Deposits can be taken for 5 years or even for other periods. Banks


The object of nationalisation was to enable the banks to open branches in rural areas o and also to see that the credit facilities were offered the small man in business, industry and agriculture. Banks earn interest on credits, but in order to have sufficient fund they must tap the resources of the people. By opening savings bank account families can earn some interest (about 5% p.a) while at the same time able to withdraw the money as and when they want.


Deposit Accounts


Deposit accounts are intended for amounts that one does not need immediately. This means that provision has been made for emergency fund, insurance etc. and foreseen expenditures in the immediate future. In fixed deposit accounts a lump sum is left in the account for a period of 12 months or more. On opening a fixed deposit the depositor receives a certificate from the bank containing details of the account, the amount deposited, the duration of the deposit, the date of maturity and the rate of interest. The interest is higher if the period of the deposit is higher.


Life Insurance Schemes


Insurance is a kind of protection against financial losses. For instance when we send goods by train we may insure them if they are of considerable value. In that case the insurance company will reimburse our loss in case the goods happen to be stolen or destroyed, and never reach the destination. This type of insurance is known as general insurance.


As against general insurance, life insurance is for protecting -a person or his family against loss of income because of the death of the insured.


In general there are two types of policies:


1.   Term insurance and 2. Whole Life Insurance. Term Insurance is also known as temporary insurance. The period of time may range from 3 months to 7 years. The premium is payable throughout the term of the policy and the beneficiary will be paid the face value of the policy (amount for which Insured) only if the insured dies during the period of the policy.


Straight Life Insurance: This is an insurance for whole life that is insured amount is payable to the beneficiary only on the death of the policy holder, and the premium, though lower than in other types of insurance, has to be paid throughout the life time of insured. Family protection is the predominant motive for this plan.


Public Provident Fund


This is a facility offered by the Government of India through the State Bank of India so that even individuals who do not come under a providentfund scheme. The contribution and interest paid is free of tax, withdrawal and loan facilities are available.


Unit Trust of India


This is an organization that invests the money it receives from people in various companies, especially large well – run companies make profit. Unit Trust offers a safe way for such people to invest their money in companies. Individuals can buy ‘units’ from the unit trust.




Family investment is usually defined as a person of placing family funds in a more or less permanent form with the expectation of assuring the security of principal and of receiving a regular predictable return from it.


Types of Investment:


Ownership Investment:


Here the investor’s role is that of an owner or part owner. When the money is invested on land, or in some business, the capital purchased takes the form of material assets. Money gets converted into house or equipment from which income can be got by way of rent and profit in the case of business. Since many material assets increase in value over a period of time, this appreciation means a gain in capital.


Credit and Investment


A person lending money does not become the owner of whatever the money is being utilized to acquire. The creditor’s role in this case is passive unlike in the first case where he becomes owner (on buying a house or flat) or part owner (on buying stocks and shares in a company). Creditors and borrowers need not be only persons. Even co-operations of cities and state and central government raise money to meet their expenses through borrowing. In such a case the government issues bonds. A bond is a contract or a credit instrument between the lender (creditor) and the debtor (borrower). When an investor buys a bond of a corporation or government he is lending money to the corporation or government.


A bond is a fixed-returninvestment, the amount of interest the investor receives stays the same for the life of the bond.


Stocks and Shares


Stocks and shares are the means through which individuals can become part owners of companies. Shares have a nominal value (ofRs 10 or Rs 50 or 100 or any other convenient round sum decided by the company). But their market value can change from day to day depending on the profitability of the company and the popularity which the company enjoys among the investing public. There are different kinds of shares, but the major distinction is between common shares, common stocks and preferred shares, preferred stocks. The preferred shares entitle the owner to receive dividends before the owners of common shares. Likewise when a company goes bankrupt its preferred shareholders will receive preference over the others. The difference between bonds and shares are as follows:



  • Investor’s role is active as he is owner or part owner (he has voting rights in the meetings).
  • The share certificate is certificate of ownership; risk is more. There is no maturity date.
  • Return (income yield from share) is in the form of profit or dividend
  • Investor’s role is passive, he is just a creditor of the company.



  • The bond is a credit instrument; risk is less, as more protection is offered.
  • There is a maturity date, as bonds are issued for a specified period as 5 years. Return is in the form of interest.

Principles involved in Investment:


1.      Safety of Principal.

2.      Income yield or Rate of Return.

3.      Ease of Management.

4.      Marketability or Liquidity.

5.      Maturity Date.




Each family passes through a cycle that begins with the marriage of two young persons, grows with the arrival of children and then again becomes a home of two persons, when the children marry and leave their homes. Thus the family starts with two relatively young persons, grows normally into a large group of assorted ages and finally returns to a group of two older persons. Though there may be some differences between the families, each family goes through similar stages in their life history. These stages tend to overlap each other in most families.For example, in a family where there are more than two children, one child might continue to grow with new arrivals and the eldest child might get arrived and leave the home. In this manner, this family expands and contracts at the same time. However, the family faces clearly defined situations along with the problems typical to the stage.


Importance of recognizing the family life cycle


Understanding the concept of family life cycle is a valuable guide and in realizing and meeting the managerial problems of family life for a young couple who constitute a family after marriage. The importance of recognizing family life cycle of the family lies in the opportunity it provides to the family of two young inexperienced couple to look ahead, and to foresee the family needs and wants which may be expected to arise during each stage.


However, demands on other resources such as time, energy, abilities, skills and material goods would also be felt as the family grows with the arrival of children the family cycle is predicted.



In general the family life cycle can be divided as suggested by Gross and Crandall into


three majorstages, usually called –


The beginning family – Stage I


The expanding family – Stage II


The contracting family – Stage III


Nickell and Dorsey also suggest similar division of family life cycle


Family stage Sub stage
I. Beginning 1.Period of establishment
II. Expanding 2. Child bearing and pre-school
3.Elementary School
III. Contracting 6. Vocational adjustmentof children
7.Financial Recovery



As is evident from the figure, it is important that the young couple realise the extra demands that are likely to arise after the arrival of the children. Though in the beginning, their personal income and the other resources available may be found to be adequate, the additional demands which are likely to arise in the future during the second stage. Thus it enables the family to plan for the future at a time when the flow of resources may be found to be inadequate as compared to the demands arising with the arrival of thechildren in the family. However, the income might once again become adequate when the children grow and take up gainful employment and contribute to the family’s finances.Atthe end of the life cycle, reduced earning power of the bread winner may lead to inadequate earnings. Such may be the case when he or she retires from the service either with no income or a pension which may be much below the actual salary of the person.




It has been observed that many changes have taken place in the family life cycle in the past. It has been seen that both the typical length of the three major stages in the cycle and the length of the entire cycle varies significantly. The reason for these changes are:

  •  Emergence of nuclear families
  •   Choice for a small family
  •  Increased longevity of family members due to improved medical facilities and an enhanced awareness among the people
  • Late marriages on account of emphasis on women education and employment.Due to these reasons, the possible changes that arise in family life cycle are as follows:
  • The child bearing stage becomes somewhat shorter
  • The marriage of last child comes later
  • The wife and the husband have a longer time together after the marriage of their children In India,


as a tradition, children were married at an early age even before they attainedadulthood. It was also seen that the parents were taken care of by their children. However in the recent years, a different trend has set in the families. The children leave the homes of their parents and set up homes independently.With the result, the retired parents are left alone in their homes to take care of themselves. In the cases where one partner dies, the other partner, who is left alone sometimes has to take shelter in the old age homes. Thus, the last stage, i.e. the contracting stage, becomes longer and there is a need to open up more old age homes, and the couple is excepted to save enough to meet the demands of this long period.




Industrialization and the trend towards a service economy have produced four major

changes for the individuals and their families


Family members shared work on small farms or in business in the past. The hours of work might have been long, but the entire family shared in the responsibilities in the production process. Nowadays wage earners may not spend as many hours in earning a living as they did before. This dispersion of family members make time for them in developing inter-personal relationships outside their homes.




Families in the yesteryears were confined mostly to their home towns. As producers of their own consumption products, they stayed in one place. There was less of mobility in physical terms. However, with industrialization and on account of other social changes, families started to move from one place to another. Most of the family members changed their residence either at the time of marriage or within a year after the marriage. However, the mobility rate was gradual. Producer-consumer


Families have become consumers rather than only material producers. Products can be purchased  in  a  ready  to  use  forms  for  immediate  consumption  or  in  a  partially  prepared convenience forms to be completed as and when needs arise. This has lead to an overall change in the family system.


Small Families


The joint family system flourished in the days of the past when agriculture and trade in the village were in a sound position.But, today with the establishment of new factories in urban areas, the families started moving towards cities where they have become economically independent. Technological advancements have also changed the living styles of the families. In small families, there are fewer hands to perform the household chores. Modern technology has also changed the family organization, relations and functions in many ways.




  •  More men and women get married at a later age.
  • More families have two or less than two children.
  • More persons live to their completefamily life cycle.
  • More women work outside the home.
  • Families have moved off farms/ rural areas and into cities and suburbs.
  •  Families have shifted from production to consumption.
  • Families have more resources, especially the material ones
  • Family members have more leisure and higher education.
  • Family roles have changed.
  • Family instability has increased.
  •  Individual family members have more freedom.



The analysis of family cycle reveal that the family has to pass a number of major sub-stages which are likely to have their own and typical demands on family resources. Among the various resources available to a family, the significance of some important resources like money, time and energy are felt more than the others, as their availability affect and determine the availability of the rest. Therefore, management of money, time and energy resources are discussed earlier than the discussion on the different stages of family life cycle.




Money is an important family resource for its significant role in family resource management. Money resource, otherwise known as income, starts relatively low in the young family, becomes larger in the later years. The increase in income reaches and maintains its greatest level for as long as the husband and the wife are in employment. It starts dropping with the retirement of one of them and dwindles further when the second member also retires


There may be a difference in the use of income among two families of similar size, stage of the family life cycle and other housing conditions. Their effective use of money vary on account of


·         Age of the home maker i.e. young ones are less informed.

·         Advertisements influencing young ones more than the older home maker.

·         Knowledge and experience in handling family finances.




Time availability is limited to 24 hours a day, for everyone, but the demand on that may be less, equal to or greater than that can be met. For the beginning family i.e. in stage I, the demand on time is low for both the gainfully employed and the non-gainfully employed. The couple is busy in setting up the house and establishing the family. They may spend more time on household activities because either they are inexperienced or they have more time to set up the house. The families in stage-II brings in a higher demands for the time with the arrival of the first child. Care of the child takes away most of the time of the home-maker, besides trying to find time to shop for meetings the needs of the child. With the arrival of the second child, the time demands increase till the time the children grow up and become independent. In stage-III, the mother finds more time for herself as the children leave their home. She might spend the extra time on taking up vocations or on doing social services. In joint families, she may be required to take care of her grandchildren, while the men may spend their time on leisure time activities like playing golf or bridge after their retirement from active employment pursuits.




Unlike the other sources, the flow of energy gives an interesting picture. Amount of energy flow and its demand follow in different courses. The supply of energy usually decreases as life advances. The demand upon it during stage I light, heavy during stage II and reduces once again stage III. This will once again vary among the gainfully employed and the full time home maker. Though the demand is light in stage I, it increases in stage II, where the supply of energy is found to be inadequate. Both frustration and physiological fatigue is common at this stage. In stage III, a great change occurs with the diminition of potential energy. This is likely to upset some women though the demands on energy may also come down.




The family is a socially recognized unit of people united together by marriage and legal ties. It consists of two or more people who are economically and emotionally inter- dependent on one-another by residing under the same roof. Since management of resources is primarily concerned with the certain and use of resources in daily living. The acquisition and use of resources by the family will also be affected by social group. When a family identified is managerial responsibilities in the house, it is in a position two develop its own conceptual frame work of the managerial process. By doing so, the family is able to improve its resources to enhance the quality of living and thereby increase satisfaction of its members.

Web links