The need to make India financially literate

The CEO and Executive Chairman of Berkshire Hathaway Warren Buffett once said “Do not save what is left after spending, but spend what is left after saving”. The resolution to the age old Keynes controversy that the factors, such as savings and investment are always equal, was found only a decade ago.

The answer lies in the fact that the relationship between these two factors has a lot of determinants which include level of disposable income, the real interest rate, taxation effects, financial reforms etc. These are the areas or segments where we as Indians fail to understand the facts.

The bottom line to all this is the lack of financial knowledge. The awareness on how securities markets operate, the saving pattern for retirement, risk-reward relationship etc, is still a dearth.

Along with this a major problem is the orthodoxy perceptions which exist amongst a majority people in the country especially in the rural segments. A large amount of population in the rural areas still succumb to saving a lot of cash in their homes which curbs money circulation in the economy. Such issues give rise to an avoided but necessary concept called financial literacy.

Until the last few decades, the phrase called financial literacy would have sounded extra-terrestrial. But this notion has a complete turnaround in the present globalised world when most of the developing nations like China and India have been emerging over the others.

How is India performing in this aspect? This has been a question for the entire nation to ponder upon. India, as a developing nation needs to reflect on how to improve the financial literacy rate especially at this juncture when the focal point of the government is financial inclusion and stability.

Even though 17.5% of the global population resides in India, according to an S&P research, 75% of them do not grasp the basic financial concepts. These basics could comprise of the ability to manage an individual’s own finances to make the day-to-day decisions towards investments in the right instruments.

Also, the changing environment in terms of life expectancy, expeditious medical and scientific evolution should affect an individual’s perception on retirement planning, long-term investments etc.

India being home to a majority of youth (34.8% of the total population, according to Census 2011), it can also be observed that the spending patterns among the young generation and other parts of the pie differ in various parameters.

Hence, financial literacy amongst most of this chunk would be deemed necessary if India needs to be called a financially literate nation. The role of women in India’s development, too, has been a crucial one. The retirement needs also vary considering the fact that the life expectancy of women is higher than that of men.

Hence, besides investing in fixed income securities, it is also desirable that the investments be made in other financial instruments as well. It also becomes imperative for children in the early age to understand the concepts of savings and develop their interests in this field so that they could become financially literate in the future.

Setting up the initial base from school gives them a sense of responsibility and pride towards the developing economy they are a part of. When being a financial literate brings so many benefits to the individuals and eventually to the nation as a whole, why are we so ignorant about it? As Suze Orman says, “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life”.

We, as Indians, have fallacious beliefs regarding financial literacy. The most common and heard-of myth is that the rich or literates are equivalent to be called as financially literate.

Another erroneous thought is that financial planning and financial knowledge is only important to adults. We as individuals need to understand that a plant stays strong only when its roots are firm. Analogously, the future generation has a need to have knowledge on why money is important and the necessary precautions they need to adapt to make their future financially strong. Hence education as a system plays a vital role to deteriorating financial illiteracy.

A quote by Robin Sharma states, “investing in yourself is the best investment you will ever make”. As mentioned earlier, the need for proper financial education at the school level would be the preliminary step to eradicate financial illiteracy.

Interest being taken

In cases where a basic financial knowledge is being given, a thorough check on its relevance seems imperative. Alongside with the responsibility held by individuals , the financial regulators have been increasingly taking interest in this concept.

A joint committee, the National Strategy for Financial Education, was created by entities like RBI, SEBI, IRDAI etc along with stock exchanges, banks, mutual funds etc. This committee brings about all the efforts taken by individuals under one schema so that the expected results are achieved.

Apart from these measures, some smaller efforts to improve awareness through short films, street plays etc, would also add up to these attempts. With a 23% yearly growth in Q3 of 2017, India has succeeded in taking second position in the world smartphone market.

This provides proof not only on the elevating number of smartphones in the Indian market but also gives enough evidence on the increasing rate in digital fluency. Alongside, initiations of the NDA government regarding Unified Payments Interface and digital wallets have been a noteworthy game-changer.

The answer to the question if India needs to concentrate on improving its financial literacy rate lies in the fact that the entire nation needs to have a sense of stewardship towards this matter in the present situation than it ever needed to. Hence, a joint effort has to be maintained for India to hold the title of an emerging economy.

(The writer is Associate Professor, Christ University Institute of Management, Bengaluru)