Financial literacy for financial inclusion

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.

Financial regulators in India — Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority of India (Irdai) and Pension Fund Regulatory and Development Authority (PFRDA) — have created a joint charter called ‘National Strategy for Financial Education on detailing initiatives taken by them and also other market participants like banks, stock exchanges, broking houses, mutual funds and insurers. What is required is a joint effort by all the banking, financial services and insurance companies as well to be able to achieve noticeable changes in the perceptions that an average Indian has about financial management.

The recent mammoth exercise of demonetization should help bring many more people into the organized sector, thereby opening up possibilities for financial inclusion and literacy. The launch of digital wallets, Universal Payments Interface (UPI) and new-age commercial and payments banks have paved new ways for a less-cash economy. 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. These numbers create enormous possibilities to go digital and create new opportunities to engage and share financial knowledge with consumers.

Financial literacy and financial stability are two key aspects of an efficient economy. Financial literacy enhances individuals’ ability to ensure economic security for their families. In India, on one hand, there is a need to reach out to lower income groups and economically weaker sections, and on the other, to millennials who are hyper- connected and require tailor-made financial products but have limited awareness of the possible financial solutions.