If literacy is the difference between reading the newspaper and waiting for someone to read it to you, then financial literacy is the difference between living and living comfortably. On the occasion of World Literacy Day, answer this question – do terms such as Inflation, Risk Diversification, Compound Interest etc. make any sense to you? If your answer is yes, and you know how these concepts work and affect you, then you are one of the mere 24% of Indians who are financially literate, according to a survey by Standard & Poor’s Financial Services LLC.
But what is financial literacy
It can be explained as one’s capacity to understand not just personal finances but also financial markets, financial products, and their risks and rewards. A financially literate individual understands concepts like financial planning, budgeting, retirement and tax planning etc., and uses that knowledge to make informed financial decisions in daily life as well as investments.
Why does 76% of India not care about it?
You don’t have to go too far looking for the answer. You worked 10 hours a day, 5-6 days a week to earn that paycheque that’s lying in your savings account. But why is it in bank, and not invested somewhere it can earn high returns? Why not make your money work as hard you do?
Most Indians don’t venture too far away from savings accounts and FDs, and never think too much about all the other investment possibilities. The same knowledge is then passed on to the next generation and the cycle of limited investment option continues.
Financial literacy is a core life skill and it is should be a part of the education system but we don’t hear about these concepts until we are already working adults. Lack of introduction to these concepts at an early stage is one of the major reasons behind India’s poor financial literacy rate.
As a consequence, most Indian’s are neither prepared for their future financial needs or financially capable of meeting their goals. Surveys show that only 42% Indians feel financially confident about their retirement, while only 24% parents are prepared for their child’s career aspirations. These numbers are directly related to India’s financial literacy and to improve its financial preparedness, awareness and education is very important.
How does financial awareness affect us?
The simple as well as the complicated answer is that it affects us immensely and everywhere. Being financially literate is essential to function effectively in all spheres of modern society, be it your education, quality of life, marriage or retirement planning.
Understanding how the financial world works enables you to not just save money (tax deductions, insurance etc.) but also grow your money (banking, investment) in order to meet the high cost of a good life. It allows you to not compromise on life. In rural areas, financial literacy can teach people to transact with banks, rather than depend on moneylenders with personal agendas.
The fact that only one-quarter of India is capable of successfully optimizing their finances, raises another important question. How can we change this?
Action. That’s the operative word here. Despite India being one of the fastest growing economies in the recent times—in no small part due to the government recognising the importance of financial inclusion and launching Payments Banks, Mudra Loans, and various special schemes—it clearly hasn’t been enough.
However, it’s important to understand that financial literacy can encourage financial inclusion but it might not necessarily work the other way around.
Educating everyone about the financial world is not an easy ask, but if you fall in the 76%, you can start with the following steps:
Related: Financial Planning for Dummies
We, at Tomorrow Makers, understand the importance of financial literacy and the very purpose behind our existence is to empower our readers on the concept of personal finance by providing relevant information and guidance to help people achieve a lifetime of financial security. It’s important to understand that we all have the option to be financially prepared and secure, but we can only make the best of these options if we understand them.
While credit cards come with a host of benefits, they must be used carefully, and never in these situations!