Financial Blog

The Great Depression

The Great Depression was the greatest and longest economic recession in modern world history. It began with the U.S. stock market crash of 1929 and did not end until 1946 after World War II. Economists and historians often cite the Great Depression as the most catastrophic economic event of the 20th century.

As the effects of the Depression cascaded across the US economy, millions of people lost their jobs. By 1930 there were 4.3 million unemployed; by 1931, 8 million; and in 1932 the number had risen to 12 million. By early 1933, almost 13million were out of work and the unemployment rate stood at an astonishing 25 percent. Those who managed to retain their jobs often took pay cuts of a third or more.

More than a third of the nation’s banks failed in the three years following 1929. Long lines of desperate and despairing people outside banks hoping to retrieve their savings were common. Many ordinary citizens lost their life savings when banks failed.




Men waiting in line for free soup, coffee, and doughnuts in Chicago, 1931

The Subprime Mortgage Crisis

Subprime mortgages are named for the borrowers that the mortgages are given to. If the prime rate for a mortgage is what is offered to people with good credit and a history of dependability, subprime is for those who have struggled to meetthose standards.

It doesn't happen overnight. In the early-to-mid 2000s, interest rates on house payments were actually quite low. In what looked to be a solid economy after a brief early 2000s recession, more and more people with struggling credit were able to qualify for subprime mortgages with manageable rates, and happily acted on that.

This sudden increase in subprime mortgages was due in part to the Federal Reserve's decision to significantly lower the Federal funds rate to spur growth. People who couldn't afford homes or get approved for loans were suddenly qualifying for subprime loans and choosing to buy, and American home ownership rose exponentially.

Home prices fell tremendously as the housing bubble completely burst. This crushed many recent homeowners, who were seeing interest rates on their mortgage rise rapidly as the value of the home deteriorated.

Investment banks that bought and sold these loans that were being defaulted on started failing. Lenders no longer had the money to continue giving them out. By2008, the economy was in complete freefall.

Lehman Brothers was one of the largest investment banks in the world for years. It was also one of the first investment banks to get very involved with investing in mortgages, somethingthat would pay off until it became their downfall.




A step towards Financial Literacy

Hello everyone!

Today we are going to discuses about savings,

What is savings ?

Savings is the portion of income not spent on current expenditures, money you put aside for future use rather than spending it immediately.

Why it’s important ?

One of the most important things to save for is unexpected financial emergencies. These can include losing your job, unexpected health issues.

Here are some other essential reasons why you should save money:

  • Save money for education
  • Save money for a house
  • Save money for travel
  • Save money for financial freedom
  • Save money for retirement
How to make budget ?

If you’re new to budgeting, figuring out how to manage your money each month canfeel overwhelming. Not only do you need to organize, but you also have to make difficult decisions about how to spend your cash. Relying on the experiences of others can help only so much, because your income and expenses are unique.

But there’s good news: You don’t need complicated spreadsheets with countless spending categories, and you don’t need to be a financial expert to understand howmuch money you can spend. You simply need to follow the 50-20-30 Rule.

What is the 50-20-30 Rule ?

The 50-20-30 Rule helps you build a budget by using three spending categories :

  • 50% of your income should go to living expenses and essentials. This includes your rent, utilities, and things like groceries and transportation for work.
  • 20% of your income should go to financial goals, meaning your savings, investments, and debt-reduction payments (if you have debt, such as credit card payments).
  • 30% of your income should be used for flexible spending. This is everything you buy that you want but don’t necessarily need (like money spent on movies and travel).

Keep in mind that the percentages for essentials and flexible spending are the maximum you should spend. Falling under those guidelines can leave more money for other financial goals.




A step towards Financial Literacy

Welcome back everyone, In previous topic we had discuss important things aboutsaving like what is saving, why its mandatory how much we should save everymonths and Budgeting Trump Rule 50-20-30 and its important.

f you haven’t read our previous article so first read it or you may also find our“MSTS Online” YouTube channel for same financial literacy content in Hindi andEnglish both languages.

So let’s start our today’s discussion –

Savings is enough ? “

One of the oddest things about economic life, it is the prices for things keep rising.

So let me explain with real life example, Mr. kapoor was one of the richest person ofIndore in year of 1950 and his annual income was 10,000 rupees per month andtoday a security guards is earning more than 10,000 on monthly basis.

Why is happening ?

Over time, inflation can reduce the value of your money, because prices typically goup in the future. This is most noticeable with cash. If you keep 10,000 under yourbed, that money may not be able to buy as much 20 years into the future. Whileyou haven't actually lost money, you end up with a smaller net worth becauseinflation eats into your purchasing power.

When you keep your money in the bank, you may earn interest, which balances outsome of the effects of inflation. When inflation is high, banks typically pay higherinterest rates. But once again, your savings may not grow fast enough tocompletely offset the inflation loss.

What’s Behind Inflation ?

Inflation occurs as demand for goods and services grow. As the total money supplyin an economy rises, there is likely to be more demand for goods and services fromconsumers. As more people buy more goods, sellers hike their prices.

Measuring inflation

How do you measure the effect of inflation on your savings? The governmentmeasures it for you and publishes the results regularly. The Consumer Price Index(CPI) tracks the prices of a variety of consumer goods and services, includingtransportation, medical care, and housing. The index is published monthly.

How protect your money from Inflation.
“Convert Your Savings to effective Investments”



In details we will cover it on next articles.

The Dutch Tulip Bulb Market Bubble

The Dutch tulip bulb market bubble, also known as 'tulip mania' was one of the most famous market bubbles and crashes of all time. It occurred in Holland during the early to mid 1600s when speculation drove the value of tulip bulbs to extremes. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person's annual salary.

The expanding interest in tulips coincided with an especially prosperous period in the history of the United Provinces, which, by the 17th Century, dominated world trade and had become the richest country in Europe. As a result, not only aristocratic citizens but also wealthy merchants and even middle-class artisans and tradesmen suddenly found that they had spare cash to spend on luxuries such as expensive flowers.

Already by 1623, the sum of 12,000 guilders – considerably more than the value of a smart townhouse in Amsterdam – was offered to tempt one tulip connoisseur into parting with only 10 bulbs of the beautiful, and extremely rare, Semper Augustus – the most coveted tulip variety. It was not enough to secure a deal.

By 1636, the tulip bulb became the fourth leading export product of the Netherlands, after gin, herrings, and cheese. The price of tulips skyrocketed because of speculation in tulip futures among people who never saw the bulbs. Many men made and lost fortunes overnight.

Tulip mania reached its peak during the winter of 1636–37, when some bulbs were reportedly changing hands ten times in a day. No deliveries were ever made to fulfil any of these contracts, because in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt. The collapse began in Haarlem, when, for the first time, buyers apparently refused to show up at a routine bulb auction. This may have been because Haarlem was then suffering from an outbreak of bubonic plague. The existence of the plague may have helped to create a culture of fatalistic risk-taking that allowed the speculation to skyrocket in the first place; this outbreak might also have helped to burst the bubble.




A step towards Financial Literacy

In this financial literacy initiative, we are talking about the four pillars of financial literacy; so far we have talked about two pillars of savings and budget. Now we will understand the third pillar Debt (debt). Almost everyone in their lifetime needs to take a loan in the absence of sufficient savings at some time. Most of the financial problems start with debt, whether it is an individual, corporate or the country's economy. However for most people debt becomes a part of their life. If you also have to take a loan, then firstly find out which category of loan is your loan, good loan or bad loan? Good debt benefits your financial future, while bad debt hurts it.

Good debt is an investment that will increase in value or generate long term income. Student loans, business loans and home loans are the perfect example of good loans for college education. College education increases your importance as an employee and also increases your potential future income.

Anything that keeps decreasing in value after purchase or does not get back the value invested is bad debt. Unfortunately, they have many basic requirements, such as clothes, cars, and electronic gadgets. A very bad example of bad debt is credit card debt, credit cards are rarely used for things that cost back. On top of that, interest rates go up a lot - sometimes interest rates above 20% -25% are charged.

If you still have to take a loan, keep some important rules in mind.

"20/4/10 Rules" (Rules for Car Expenses and Loans)

What the 20/4/10 rule says:

  • Make a down payment of at least 20%
  • Do not take a loan for more than 4 years,
  • And do not let your total monthly vehicle expenses, including principal, interest and insurance, exceed 10% of your gross income.
How much should you spend at home ?

If you want to calculate yourself,

The most reasonable way to estimate a reasonable range for your home purchase is to multiply your annual salary by 3 on the low end and 4 on the high end.

If you earn 10 lakhs in a year, then you should look at houses between 30 lakhs (10 × 3) to 40 lakhs (10 × 4). With this, you came to know a reasonable limit for the purchase of your house, you should buy a house between 30 lakh to 40 lakh.