NCERT Solutions Class 9 Social Science (Understanding Society: India and Beyond, Part II) Chapter 5 – Managing Your Personal Finances
Circle of Learning • New NCERT textbook (2026-27) • In-text questions, activities and end-of-chapter questions – complete answers
The Big Questions
What is personal finance and why is it important for individuals?
Answer
Personal finance is the planning and management of an individual's money to meet needs and wants – deciding how much to spend, save and invest, and how to prepare for future needs. It is important because money is a limited resource; good planning helps people reach goals like higher education or a house, face emergencies and stay financially secure.
Answer
What are the pillars of personal finance?
The five pillars are income (money received), budgeting (planning spending on needs and wants), saving (setting aside money for the future and emergencies), investing (putting savings into assets like stocks and mutual funds) and protection and risk management (insurance and debt management).
Answer
What are some common savings and investment options?
Common options are fixed deposits, government-backed schemes like PPF, NSC and Sukanya Samriddhi Yojana, bonds, stocks (shares) and mutual funds. They differ in risk, return, time horizon and liquidity.
Answer
How can you protect your savings and assets?
Through insurance – health, life and general insurance (motor, property, crop and cattle) – which shares risk and pays for unexpected losses. Responsible borrowing, avoiding too many EMIs and keeping an emergency fund also protect savings.
Answer
What is income tax?
Income tax is a direct tax paid on the income a person earns in a financial year. India uses a progressive slab system, so higher incomes are taxed at higher rates, and the money funds public services like schools, hospitals, roads and defence.
Introductory questions (Your money habits)
Have you ever received pocket money or money from relatives during festivals or special occasions? Do you spend it immediately or save some of it? Do you keep your savings in a piggy bank (gullak) or somewhere else? How do you manage expenses such as travelling to school, buying stationery or buying food from the canteen? Have you ever planned your spending to save for something you wanted later?
Answer
Sample answer: I get pocket money every month and some money on Diwali and my birthday. I spend a part on stationery and snacks and save the rest in my gullak; recently my parents helped me open a savings bank account. I plan my expenses by keeping fixed amounts for bus fare and stationery and limiting canteen food to once a week. Last year I saved for three months to buy a cricket bat, which taught me that planning helps us get what we really want.
Think About It (Earning your own money)
Have you ever thought about earning your own money? What kind of skill would you require and which work would you choose?
Answer
Sample answer: Yes. I could earn money by teaching younger children, designing posters or greeting cards, or helping small shops with simple computer work. For tutoring I would need good subject knowledge, patience and communication skills; for design work I would need drawing and computer skills. In college, 'Earn While You Learn' programmes, part-time work, internships or apprenticeships would let me earn, gain practical skills and work experience while continuing my studies.
Think About It (Badminton rackets)
Suppose you and your friends need to buy new badminton rackets for an upcoming tournament. How would you manage your budget to cover the cost? Would you cut back on other expenses, use your savings, or borrow the amount from your parents or friends?
Answer
Sample answer: First I would find out the price and compare shops. If the tournament is a few weeks away, I would cut back on wants like snacks and outings and add that to my savings. If I still fall short, I would use part of my savings, and only as a last option borrow a small amount from my parents, with a clear plan to repay it from my pocket money. Borrowing should be the last choice, because it has to be paid back.
Let's Explore (Your weekly/monthly budget)
Think of all your expenses and prepare your monthly/weekly budget.
Answer
Sample monthly budget (pocket money ₹1,000):
Item | Amount (₹) |
Bus/auto fare | 300 |
Stationery | 150 |
Canteen snacks | 200 |
Mobile recharge share | 100 |
Gifts and outings | 100 |
Total expenses | 850 |
Savings (1,000 – 850) | 150 |
Think About It (If you received ₹100 today)
What would you do if you received ₹100 today? Would you save some or all of it, or spend it right away?
Answer
Sample answer: I would save at least part of it, for example ₹50, and spend the rest only on something I really need, rather than spending all of it right away.
Answer
Would you prefer spending the money on a want or a need?
I would spend it on a need first, such as a notebook or bus fare, because needs are essential for living and studying, while wants like snacks or games can wait.
Financial experts often suggest saving first and spending what is left. Do you agree?
Answer
Yes. If we save first, saving becomes a habit and does not depend on whether something is left at the end of the month; we then adjust our spending to the remaining money. This follows the idea Expenses = Income – Savings.
Do you think individuals with low income can also save? Why or why not?
Answer
Yes. Even small amounts saved regularly add up over time and grow with interest, and they are very important for low-income families because emergencies can push them into debt. Careful budgeting, cutting unnecessary spending and safe options like a post office or small savings scheme help them save.
Investing (Growing Wealth) – Priya and Sameer
Priya keeps her ₹500 in a piggy bank and still has ₹500 after a year. Sameer puts his ₹500 into a savings scheme that earns 8% interest a year. Both are being responsible with money, but are they doing the same thing?
Answer
No. Priya is only saving, while Sameer is investing.
Sameer's interest = 8% of ₹500 = 500 × 8/100 = ₹40, so he has ₹500 + ₹40 = ₹540 after one year.
Priya still has ₹500, and if prices rise because of inflation, her ₹500 will buy less than before. Sameer's money has grown and is better protected against inflation.
Let's Explore (Power of compounding, Fig. 5.4)
In Fig. 5.4, the curves are flatter in the beginning and tend to become steeper in the later years. Why do you think that happens?
Answer
This happens because of compounding. In the early years the amount is small, so the interest earned each year is small and the curve rises slowly. As the amount grows, interest is earned on the original savings and also on all the interest added earlier, so each year's increase becomes bigger and the curve becomes steeper. This is why Bhavisha, who started at 25, ends with ₹1,99,635, while Dhruv, who started at 35, ends with only ₹94,460, even though both save ₹1,000 every year at 7%.
Talk to your parents and find out the fixed deposit rates of their bank. You can also refer to the bank's website.
Answer
Sample answer: Fixed deposit rates vary from bank to bank and change from time to time; they also depend on the period of the deposit, and senior citizens usually get a slightly higher rate. Students should note the current rates for 1, 3 and 5 years from their parents' bank passbook or the bank's official website and compare them in a table.
Let's Analyse (BSE SENSEX)
The SENSEX fluctuates over short time periods; however, it can go up significantly in the long run. Why do you think these fluctuations happen?
Answer
Short-term fluctuations happen because share prices respond to news and changing expectations, such as:
(i) company performance – profits, losses and new products;
(ii) economic changes – growth, inflation, interest rates and government budgets;
(iii) global events – financial crises, wars, pandemics (such as the fall in 2020) and changes in oil prices;
(iv) investor sentiment – fear or optimism leading to large buying or selling.
In the long run, the SENSEX tends to rise because the economy and company profits grow over time.
Think About It (Mutual fund disclaimer)
"Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing." Why do you think this is included?
Answer
Mutual funds invest in shares, bonds and other assets whose prices go up and down, so returns are not guaranteed and investors may even lose money. The disclaimer warns investors about this risk and advises them to read the scheme's details – where it invests, its costs and its risk level – so that they make informed decisions and are not misled by advertisements.
Think About It (EMIs)
Why might a family choose to buy something on EMI even if it costs more in the long run?
Answer
A family may not have the full amount at once but may need the item now, for example a refrigerator. In the textbook example, the family pays ₹3,000 × 12 = ₹36,000 instead of ₹30,000, so the extra ₹6,000 is the interest cost. Paying in small fixed monthly amounts fits their monthly budget and lets them keep their savings for emergencies.
Answer
Can having too many EMIs affect savings and emergency funds?
Yes. Each EMI is a fixed monthly payment, so many EMIs take away a large part of income, leaving little for saving or for an emergency fund. If income falls or an emergency occurs, the family may be unable to pay, leading to a debt burden, penalties and financial difficulty.
Let's Analyse (Income tax)
Sai's taxable income is ₹3,80,000 in a financial year. How much income tax does he have to pay according to the above tax slabs?
Answer
Under the slabs in Table 5.1, income up to ₹4,00,000 is taxed at Nil.
Sai's taxable income = ₹3,80,000, which is less than ₹4,00,000.
Tax = 0% of ₹3,80,000 = ₹0. Sai does not have to pay any income tax.
Ask your parents, relative or a person in your neighbourhood if they file personal income tax returns. Make a small report on the procedure to file an income tax return.
Answer
Sample report – Steps to file an Income Tax Return (ITR) online:
(i) Collect documents – PAN, Aadhaar, Form 16 (salary certificate), bank interest certificates and investment proofs.
(ii) Log in to the official Income Tax e-filing portal using PAN and password.
(iii) Choose the assessment year and the correct ITR form.
(iv) Fill in or check pre-filled details of income, deductions and taxes already paid (TDS).
(v) Calculate the tax payable or refund due, and pay any balance tax online.
(vi) Submit the return and e-verify it, for example through an Aadhaar OTP.
(vii) Keep the acknowledgement; refunds, if any, are credited to the bank account.
Returns must be filed every year by the due date, and filing honestly is every taxpayer's duty.
Questions and activities
Why is managing money wisely important for all individuals irrespective of their income?
Answer
Every person, rich or poor, has limited money and many needs and wants, so careful choices are necessary.
(i) It helps meet daily needs and live within one's means, avoiding unnecessary spending.
(ii) It allows saving for goals such as education, a house or a bicycle.
(iii) It prepares people for emergencies like illness, accidents or loss of income.
(iv) Investing wisely protects money from inflation and makes it grow through compounding.
(v) Responsible borrowing avoids a debt burden, and insurance protects against big losses.
A high income can be wasted through poor management, while even a low income can give security if it is managed well.
How can budgeting help people balance their present needs with their future financial goals? Give examples.
Answer
Budgeting means planning in advance how income will be spent, so that both today's needs and tomorrow's goals are covered.
(i) It lists all expenses and separates needs from wants, controlling unnecessary spending like frequent eating out or impulse shopping.
(ii) It sets aside a fixed amount for goals – for example, saving ₹500 a month for six months to buy a ₹3,000 bicycle.
(iii) A family can plan monthly spending on food, rent, school fees and transport while still saving for a child's higher education.
(iv) It keeps money aside for emergencies, so present problems do not destroy future plans.
(v) Tracking and reviewing the budget, for example when transport costs rise, keeps it realistic.
School Reopening Budget Activity: Your parents have given you ₹3,000 to prepare for the new school year. Make a list of the items you need, find out their prices and prepare a budget. Check whether it stays within ₹3,000.
Answer
Sample budget (prices are examples; use prices from your local stores):
Expenses | Amount (₹) |
School bag | 500 |
Books | 750 |
Uniform and shoes | 1,100 |
Notebooks (10 × ₹30) | 300 |
Pens (6 × ₹10) | 60 |
Pencils (8 × ₹5) | 40 |
Art supplies | 150 |
Total expenses | 2,900 |
Savings (3,000 – 2,900) | 100 |
Check: 500 + 750 + 1,100 + 300 + 60 + 40 + 150 = ₹2,900, which is within ₹3,000. Since ₹100 is left, I could add one item, such as a geometry box, or keep it as savings. If the total had been more than ₹3,000, I would postpone non-urgent items, for example reuse last year's bag or buy only the books needed for the first term.
Why is saving alone often not enough to build wealth in the long run? How do investments help increase the value of money over time?
Answer
Money kept as cash does not grow, while prices keep rising because of inflation. If a school bag costs ₹1,000 today and inflation is 6%, it may cost ₹1,060 next year, so the same saved money buys less – its purchasing power falls.
Investments help in these ways:
(i) They earn returns such as interest, dividends or rise in price – Sameer's ₹500 became ₹540 at 8%.
(ii) Good investments can grow faster than inflation and protect the value of money.
(iii) Through compounding, returns earn further returns, so money grows faster over time, especially when one starts early, as Bhavisha's example shows.
However, investments should match one's goals and risk-taking ability.
Investment Planning Activity: Suppose you received cash gifts worth ₹3,000 and decided to save ₹1,500. Calculate the returns you might have earned if you had invested this amount in different combinations of investments, for example ₹500 in a fixed deposit, ₹800 in the stock market and ₹200 in gold. Try other combinations and prepare an investment plan.
Answer
Illustrative calculation for one year. The rates below are assumptions for practice only; actual returns must be checked from reliable sources and stock and gold returns are not guaranteed. Assumed: FD 7%, stocks 12% in a good year, gold 10%.
Combination | Working | Return (₹) | Value after 1 year (₹) |
A: FD 500, stocks 800, gold 200 | 500 × 7% = 35; 800 × 12% = 96; 200 × 10% = 20 | 151 | 1,651 |
B: FD 1,000, stocks 300, gold 200 | 1,000 × 7% = 70; 300 × 12% = 36; 200 × 10% = 20 | 126 | 1,626 |
C: FD 1,500 only | 1,500 × 7% = 105 | 105 | 1,605 |
A in a bad year (stocks fall 10%) | 35 – 80 + 20 | –25 | 1,475 |
Investment plan: Combination A gives the highest return in a good year but can lose money in a bad year because more is in stocks. Combination C is safest but grows the least. For a student with a short time horizon, Combination B is a sensible balance – most money in a safe FD, a small amount in stocks (or a mutual fund) for growth and a little in gold for diversification. Stocks suit only money that can stay invested for many years.
How does inflation affect the value of money over time? Why should people consider inflation while making financial decisions?
Answer
Inflation is the rise in prices of goods and services over time, which reduces the purchasing power of money – the same amount buys fewer goods. For example, at 6% inflation, things costing ₹10,000 today would cost about ₹10,000 × 1.06 × 1.06 = ₹11,236 after two years, so ₹10,000 kept at home would fall short.
People should consider inflation because (i) savings kept idle lose value; (ii) the real gain from an investment is its return minus inflation; (iii) future goals like education or a house will cost more, so they must save and invest more; and (iv) choosing investments that can beat inflation protects their standard of living.
Different investment options involve different levels of risk and return. Do you think taking higher risks is always the best way to earn higher returns? How should a person decide which investment option is most suitable for them?
Answer
No. Higher-risk investments like shares may give higher returns over the long term, but they can also lose value, especially in the short term, so high risk is not always the best choice.
A person should decide by considering:
(i) Financial goal – what the money is for.
(ii) Risk – how much loss they can bear.
(iii) Return – how much growth they need.
(iv) Time horizon – money needed soon should be kept in safer options like FDs; long-term money can be invested partly in shares or mutual funds.
(v) Liquidity – how quickly the money may be needed.
Spreading money across different assets (diversification) also reduces risk.
Why do people buy insurance policies even though they may never face a major loss? How does insurance provide financial security?
Answer
Life is uncertain, and illness, accidents, death of an earning member or damage to property can happen suddenly and cost far more than a family's savings. People pay a small, regular premium for peace of mind and protection, just in case.
Insurance provides security through risk sharing – many people pay premiums into a common pool, and those who suffer a loss are compensated from it. For example, a family paying ₹500 a month for health insurance gets most hospital bills paid. Life insurance supports dependents, and motor, property, crop and cattle insurance cover damage to assets, helping families recover without losing their savings.
Imagine your family receives ₹1,00,000 from farming, a small business, livestock sales, and savings. Help your family decide how to use the money wisely.
Answer
Step 1: Prepare a Budget (sample allocation)
Category | Amount (₹) | Percentage (%) |
Savings | 30,000 | 30 |
Education | 15,000 | 15 |
Household expenses | 25,000 | 25 |
Health and emergency fund | 10,000 | 10 |
Farm or business investment | 10,000 | 10 |
Home improvement | 5,000 | 5 |
Festivals and recreation | 3,000 | 3 |
Other | 2,000 | 2 |
Total | 1,00,000 | 100 |
Step 2: Needs vs Wants
(i) School fees – Need: education is essential for the children's future.
(ii) New mobile phone – Want: useful, but the family can manage with the existing phone (it becomes a need only if no phone is available for work or study).
(iii) Better seeds or livestock feed – Need: they increase farm output and income.
(iv) Festival celebrations – Want: culturally important, but the amount can be limited.
(v) Water storage tank – Need: it ensures a regular water supply for the home and animals.
Step 3: Save for the Future – P = ₹30,000, r = 8% = 0.08, n = 5 years.
A = P(1 + r)ⁿ = 30,000 × (1.08)⁵
(1.08)⁵ = 1.08 × 1.08 × 1.08 × 1.08 × 1.08 = 1.4693 (approximately)
Year by year: 32,400.00 → 34,992.00 → 37,791.36 → 40,814.67 → 44,079.84
1. Amount after 5 years = ₹44,079.84 (about ₹44,080)
2. Interest earned = 44,079.84 – 30,000 = ₹14,079.84 (about ₹14,080)
Step 4: Save First, Spend Later – Expenses = Income – Savings = 1,00,000 – 30,000 = ₹70,000 available for spending in this plan. (In the textbook example, saving ₹20,000 first leaves ₹80,000.)
Step 5: Reflect
1. 30% was saved (40% if the health and emergency fund is also counted).
2. Needs: school fees, household expenses, health fund, seeds or feed, water tank. Wants: new mobile phone, festivals and recreation.
3. Savings give a cushion for emergencies such as illness or crop failure, avoid costly borrowing, and help meet future goals like education.
4. Compound interest adds interest every year to the principal, and the next year's interest is calculated on this larger amount, so ₹30,000 grows to about ₹44,080 in five years without any extra deposit.
Challenge: Pie chart – Angle of each sector = percentage × 3.6°: Savings 108°, Education 54°, Household expenses 90°, Health and emergency fund 36°, Farm or business investment 36°, Home improvement 18°, Festivals and recreation 10.8°, Other 7.2° (total 360°).
Extra Important Questions
Multiple Choice Questions
Which of the following is an indirect tax?
Answer
(a) Income tax (b) Corporate tax (c) Goods and Services Tax (GST) (d) Wealth tax
Answer: (c) Goods and Services Tax (GST)
How easily an asset can be converted into cash without affecting its value is called:
Answer
(a) Inflation (b) Liquidity (c) Compounding (d) Dividend
Answer: (b) Liquidity
A bond worth ₹10,000 pays 5% interest per year and matures in one year. The total amount received at maturity is:
Answer
(a) ₹10,050 (b) ₹10,500 (c) ₹11,000 (d) ₹15,000
Answer: (b) ₹10,500 (interest = 5% of ₹10,000 = ₹500)
The BSE SENSEX tracks the performance of how many companies?
Answer
(a) 10 (b) 30 (c) 50 (d) 100
Answer: (b) 30
Spreading investments across different types of assets to reduce risk is called:
Answer
(a) Portfolio diversification (b) Budgeting (c) Inflation (d) Standard deduction
Answer: (a) Portfolio diversification
The body that administers laws relating to direct taxes in India is the:
Answer
(a) RBI (b) SEBI (c) CBDT (d) NITI Aayog
Answer: (c) CBDT
Short Answer Questions
Distinguish between saving and investing.
Answer
Saving means keeping aside a part of income for future use or emergencies; cash savings are highly liquid but do not grow and lose value due to inflation. Investing means putting savings into assets like FDs, bonds, shares or mutual funds to protect their value and earn returns, so the money grows over time.
Answer
What is progressive taxation? Why is it followed?
Progressive taxation is a system in which the tax rate rises as income rises, as in India's slab system. It is followed because people with greater financial capacity can afford to contribute a larger share towards public services, and it helps reduce income inequality.
Mention the four factors to consider before making an investment decision.
Answer
Risk (the chance of losing money), return (the profit earned), time horizon (how long the money can remain invested) and liquidity (how easily the investment can be turned into cash). Generally, lower-risk investments give lower returns and higher-risk investments may give higher returns.
Answer
When is borrowing helpful and when is it harmful?
Borrowing is helpful when used for productive purposes, such as an education loan for higher studies or a loan to expand a business. It is harmful when used to buy unnecessary consumer goods or when too many loans are taken, because repayments with interest can create a debt burden.
Long Answer Questions
Rohan, a salaried employee, earns ₹22,00,000 a year. Using the new tax regime slabs (Table 5.1) and the standard deduction of ₹75,000, calculate his income tax.
Answer
Step 1: Taxable income = 22,00,000 – 75,000 = ₹21,25,000
Step 2: Apply the slabs:
Portion of income | Rate | Tax (₹) |
Up to ₹4,00,000 | Nil | 0 |
₹4,00,001–₹8,00,000 (₹4,00,000) | 5% | 20,000 |
₹8,00,001–₹12,00,000 (₹4,00,000) | 10% | 40,000 |
₹12,00,001–₹16,00,000 (₹4,00,000) | 15% | 60,000 |
₹16,00,001–₹20,00,000 (₹4,00,000) | 20% | 80,000 |
₹20,00,001–₹21,25,000 (₹1,25,000) | 25% | 31,250 |
Total tax | 2,31,250 |
Rohan's income tax = ₹2,31,250 (calculated as in the textbook example, before any cess). The calculation shows progressive taxation: each higher portion of income is taxed at a higher rate, but the lower portions are still taxed at the lower rates.
Explain the common investment options and compare them in terms of risk and return.
Answer
(i) Fixed deposits: A lump sum is deposited in a bank or post office for a fixed period at a fixed interest rate. They are among the safest options with assured but relatively low returns. Government-backed schemes like PPF, NSC and Sukanya Samriddhi Yojana are also safe.
(ii) Bonds: The investor lends money to the government or a company and earns regular interest, getting the principal back on maturity. Government bonds are safer than corporate bonds; they suit those wanting stable income.
(iii) Stocks (shares): Buying shares makes one a part-owner of a company, earning dividends and gains from rising prices. Prices fluctuate, so risk is the highest, but long-term returns can be the highest.
(iv) Mutual funds: They pool money from many investors and invest it in a basket of assets managed by professionals, reducing risk through diversification; returns may be higher than FDs but are subject to market risk.
In general, risk and return go together, so the choice should depend on one's goals, time horizon and risk tolerance.