Dis­cussing the rel­e­vance and re­quire­ment of fi­nan­cial lit­er­acy in In­dia, Am­bar­ish Datta, man­ag­ing di­rec­tor, BSE In­sti­tute Ltd. Mum­bai, lists his strate­gies of change

India Today - - SPOTLIGHT -


Over the past few years, the fi­nan­cial land­scape in In­dia has changed sig­nif­i­cantly. Not only must we take greater charge of our fi­nan­cial well be­ing once we re­tire, but we need to fore­cast fu­ture fi­nan­cial needs, nav­i­gate in­creas­ingly com­plex fi­nan­cial mar­kets and man­age risk, both dur­ing and af­ter our work­ing years. At the same time, fi­nan­cial prod­ucts, in­clud­ing loans and prod­ucts used for sav­ing and in­vest­ing, have be­come nu­mer­ous and more complicated, re­quir­ing in­di­vid­u­als to make choices on an ar­ray of op­tions. In ad­di­tion, the price tag for many com­po­nents of their dream— in­clud­ing pur­chas­ing a home or fund­ing a child’s col­lege ed­u­ca­tion— has risen since the 1980s and 1990s. Es­pe­cially with re­spect to col­lege tuition costs, that trend prom­ises to con­tinue.

Against this back­drop, the con­se­quences of not hav­ing the nec­es­sary skills to make sound fi­nan­cial de­ci­sions be­come ever more se­vere. Not only has man­ag­ing day- to- day fi­nances be­come more dif­fi­cult for many In­di­ans, but there are also greater risks in get­ting it wrong.

In­dia is among the world’s most ef­fi­cient fi­nan­cial mar­kets in terms of tech­nol­ogy, reg­u­la­tion and sys­tems. It also has one of the high­est sav­ings rate in the world - our gross house­hold sav­ings rate, which av­er­aged 19 per cent of gross do­mes­tic prod­uct ( GDP) be­tween 199697 and 1999- 2000, in­creased to about 23 per cent in 2003- 04 and has been grow­ing ever since. While sav­ings are more in In­dia, where the sav­ings are in­vested is a cause for con­cern.

A ma­jor­ity of our house­holds do not use mod­ern fi­nan­cial mar­kets. As per an RBI re­port, only 1.4 per cent of house­hold sav­ings was in­vested in eq­uity, mu­tual funds and deben­tures in 200304. Though this went up to about four per cent in 2005- 06, it is still not much.

Un­less the com­mon per­son be­comes a wiser in­vestor and is pro­tected from wrong do­ings, wealth cre­ation for the in­vestor and the econ­omy will re­main a dis­tant dream. The prob­lem of adult il­lit­er­acy in In­dia is wide­spread and alarm­ing, how­ever, we are aware of it and mea­sures are be­ing taken to ad­dress it. The prob­lem of math­e­mat­i­cal il­lit­er­acy is much less well known. In fact, it is down­right ob­scure— so ob­scure that there isn’t re­ally a ready- made term to de­scribe the group of peo­ple who can’t cal­cu­late bank de­posit in­ter­ests or bal­ance their checkbook.

Renowned math­e­ma­ti­cian John Allen Pau­los tried to change that in 1988 when he pub­lished the book

In­nu­mer­acy. He de­scribed in­nu­mer­acy as, in­com­pe­tence with num­bers. In­nu­mer­acy leads to many in­cor­rect fi­nan­cial de­ci­sions. What is the im­pli­ca­tion of in­nu­mer­acy? It means peo­ple who are in­nu­mer­ate can­not de­ter­mine whether a car has enough petrol to get to the next petrol pump, cal­cu­late the cost of rais­ing a child for a year in a fam­ily with a spec­i­fied in­come, cal­cu­late the to­tal cost of of­fice sup­plies us­ing a page from an of­fice sup­plies cat­a­logue and an or­der form. They also can­not com­pare dif­fer­ent home or per­sonal loan op­tions and iden­tify which is the best.


With the rapid growth in our econ­omy and greater num­ber of peo­ple hav­ing a dis­pos­able in­come that can be in­vested in var­i­ous av­enues like the cap­i­tal mar­kets, fi­nan­cial lit­er­acy is the need of the hour. About 50 per cent of house­holds in the US and Swe­den, and over one third in the UK in­vest di­rectly or in­di­rectly ( through mu­tual funds and other man­aged in­vest­ment ac­counts) in the stock mar­ket. In the Nether­lands, Italy, France and Ger­many the pro­por­tion is be­tween 15 and 25 per cent, but in each of these coun­tries it has in­creased quite sig­nif­i­cantly, some­times dou­bling in the course of the last decade. You can

imag­ine the huge im­pact re­tail par­tic­i­pa­tion will have on the In­dian econ­omy, if we can move from the cur­rent four to five per cent to 15 per cent.

We need to have a well chalked out plan to spread fi­nan­cial lit­er­acy and im­ple­ment it across the na­tion ad­dress­ing all strata of so­ci­ety. We need to co­or­di­nate with all agen­cies like the gov­ern­ment, fi­nan­cial in­sti­tu­tions and ed­u­ca­tional in­sti­tutes to make it hap­pen.

Al­ready there are ef­forts at fi­nan­cial lit­er­acy be­ing taken up by banks, fi­nan­cial in­sti­tutes, and gov­ern­ment agen­cies. If all these ef­forts can be co­or­di­nated and ed­u­ca­tional in­sti­tutes can be looped in to launch a na­tional fi­nan­cial lit­er­acy mis­sion, we can re­ally make a dif­fer­ence.

Like some other coun­ties in the world such as Australia, we need to have a na­tional fi­nan­cial lit­er­acy pol­icy. This na­tional strat­egy to im­prove fi­nan­cial lit­er­acy should be founded upon some core prin­ci­ples. One could be in­clu­sive­ness— reach­ing all In­di­ans, par­tic­u­larly those most in need and fu­ture gen­er­a­tions of con­sumers and in­vestors. An­other strat­egy is en­gage­ment— help­ing all In­di­ans ap­pre­ci­ate the im­por­tance of fi­nan­cial lit­er­acy and small things done reg­u­larly make a real dif­fer­ence— de­liv­er­ing learn­ing that recog­nises the dif­fer­ent ways peo­ple learn and al­lows all In­di­ans to par­tic­i­pate.

Apart from these, knowl­edge and em­pow­er­ment also plays an im­por­tant role— giv­ing all In­di­ans ac­cess to in­for­ma­tion, tools and on­go­ing sup­port sys­tems. This leads to im­prov­ing out­comes, which sim­ply put means, recog­nis­ing that in­for­ma­tion alone is not al­ways enough and ad­di­tional mech­a­nisms must be used to achieve bet­ter out­comes.

Part­ner­ships in map­ping and build­ing on ex­ist­ing foun­da­tions to fill gaps can also en­sure all sec­tors and agen­cies work co­op­er­a­tively; and fi­nally mea­sure­ment and eval­u­a­tion of work.


In­tro­duc­ing fi­nan­cial lit­er­acy in the school and col­lege cur­ricu­lum is a must for mak­ing In­dia a fi­nan­cially lit­er­ate na­tion. Ef­fec­tive in­te­gra­tion of fi­nan­cial ed­u­ca­tion into ed­u­ca­tion is the cor­ner­stone to bring­ing about long- term gen­er­a­tional change in knowl­edge, at­ti­tudes and be­hav­iours.


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