Why India Needs to Work on Financial Literacy
Finance is an important part of our lives. It holds all the pieces of our life together. But, if we raise the topic of financial literacy many of us will look clueless. The condition is even more critical for developing nations like India.
What is Financial Literacy?
Financial literacy, according to literal definition, is the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well being.
It plays a bigger role in a country like India, as it is considered an important adjunct for the promotion of financial inclusion and ultimately financial stability.
Financial Literacy- Need
As per a global survey by Standard & Poor’s Financial Services LLC (S&P), In South Asian countries, only 25% of the adults are financially literate.
Whereas, if we specifically look at the level of financial literacy in India, 76% of the adult population does not understand even the basic concepts of financial literacy. Hence, for an average Indian, awareness of the importance of financial literacy is yet to become a priority.
The survey clear confirms that financial literacy in India has been poor and consistently, if compared to other parts of the world. Basic financial literacy, inspite of being essential for a successful career is not covered in our schools and colleges.
Demographically, India is a relatively young nation compared to developed western countries. The youth that are joining the workforce today will eventually grow older and will need to meet their living expenses and medical expenses in old age through pensions and/or other means. However, for that, people should be financially aware which is not the case now. This conundrum is compounded by various other factors:
Nuclear Families have become a lot more Prevalent, and older people might, in future, not be able to count on the support of joint family system taking into account the shrinking family size
The rise of Consumerism: There are a lot more avenues to spend money, and companies bombarding us with targeted advertising make people believe that buying certain goods or services is essential for our social status. This often leads people to purchase items they either do not need, or can’t afford. There is an increasing propensity to buy such aspirational products or international vacations on personal loans or credit card EMIs. Hence we see increasing cases of revolving credit card debts, and payday loan debt traps. Savings and investments, on the other hand are considered hard and boring.
The advent of Private Sector and Slower Government Hiring: Government jobs, which used to employ a very large portion of the population are no longer as easy to come by, and the resulting competition will continue to push people to join the private sector, as new industries come up. However, government jobs offer various perks, allowances and health care benefits (through CGHS, ESI etc.) and pension plans, which is not the case with private organizations. As a result, planning for retirement is now left to individuals who do not have adequate financial knowledge on how to prepare for the future. Another major benefit that was a given with government jobs was job security, but in the private sector, there is no such thing. So employees have to keep a sufficient amount of liquid funds at their disposal to be able to weather possible contingencies.
Rise of Automation: Computerization and Automation technologies are making many jobs redundant, and people in private jobs need to be able to pivot and learn new skills to stay relevant and employable in the knowledge economy.
Inflation : Any planning for the future need to take into account the effect of inflation on the purchasing capacity. While inflation is good in small doses – it can eat into savings if it is not controlled, which is something that the government and RBI work on, so it is out of our hands. All we can do is make conservative estimates and take appropriate measures while planning for future.
Financial Illiteracy- Consequences
Financial illiteracy is a burden to our nation. Financial illiteracy results in higher cost of financial security and lesser prosperity. As studies have shown, In India, most people resort to investing more on physical assets like land, gold etc. and also in short-term investments. This conflicts with the greater need for long-term investments for households and various steps of life. It also raises concerns for meeting the country’s capital requirements for infrastructure.
How Power to Me can help you?
Looking at this urgent need of financial literacy in India, Power to me came up with the concept of e-learning module on various aspects of Financial literacy like--
- Personal Empowerment
- Financial Literacy
- Business Institute to Growth
- Investment Empowerment
All these 4 programmes are designed in a way that it collectively helps you to gain in-depth knowledge on financial literacy, personal empowerment, business, and investment. It empowers you with all the skill sets required for lifelong financial planning. To know more about Power to me and it's different modules, visit us now.
Why Power to Me?
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- Klapper, L., Lusardi, A., & Van Oudheusden, P. (2015). Financial literacy around the world. Standard & Poor’s Ratings Services Global Financial Literacy Survey., Access mode: http://media. mhfi. com/documents/2015-Finlit_paper_17_F3_SINGLES. pdf.
- Lusardi, A., & Mitchell, O. S. (2011). Financial literacy around the world: an overview. Journal of Pension Economics & Finance, 10(4), 497-508.