I wouldn’t have been writing this piece if the calendar on my desk showed a date from a decade-and-a-half back. The topic of financial literacy itself would have sounded alien, though it is now one of the top priorities for most nations. It is even more critical for developing nations like India, where the majority find financial literacy beyond their comprehension.
According to its literal definition, financial literacy is the ability to use skills and knowledge to take effective and informed money-management decisions. For a country like India, this plays a bigger role as it is considered an important adjunct to promotion of financial inclusion and ultimately financial stability.
As per a global survey by Standard & Poor’s Financial Services LLC (S&P) less than 25% of adults are financially literate in South Asian countries. For an average Indian, financial literacy is yet to become a priority. India is home to 17.5% of the world’s population but nearly 76% of its adult population does not understand even the basic financial concepts.
The survey confirms that financial literacy in India has consistently been poor compared to the rest of the world. Financial illiteracy puts a burden on the nation in the form of higher cost of financial security and lesser prosperity. An example of this is the fact that most people resort to investing more in physical assets and short-term instruments, which conflicts with the greater need for long-term investments, both for households to meet their life stage goals and for meeting the country’s capital requirements for infrastructure.
In India, there are also certain erroneous beliefs associated with financial literacy, the most common being the myth that one who is ‘literate’ or ‘rich’ is also ‘financially literate’. Lack of basic financial understanding leads to unproductive investment decisions.
Another myth is that financial literacy is more important for adults. We can achieve the desired results from financial literacy only when we start educating our children. Like many other provocative topics, money is something that kids hear about outside homes as well, which exposes them to wrong perceptions.
The push to increase usage of mobiles for payments is significant, as India is already the world’s second biggest smartphone market with over 220 million smartphone users. Mobile internet users in India total 350 million, and are expected to grow 50 million every year till 2020. These numbers create enormous possibilities to go digital and create new opportunities to engage and share financial knowledge with consumers.
The millennials are economically more active compared to their predecessors but are also more fragile in dealing with personal finances. The bottom-line, therefore, is that a ‘me-too’ approach to financial literacy will not work in India. All stakeholders including consumers must work in conjunction for financial literacy through a combination of innovative strategies.
Credits: Rajesh Sud
Rajesh Sud is executive vice-chairman and managing director, Max Life Insurance.