Financial Literacy Program
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Financial Literacy Program
Need for financial literacy.
According to the report conducted by the Global Financial Literacy Excellence Center, only 24% of the Indian adult population is financially literate. In comparison to other major emerging economies, the financial literacy rate of India is the lowest. This is due to inter-state disparities, a lack of formal training, and awareness. While other emerging economies have better financial literacy rates, there’s still scope for more improvement.
The question now arises why do we need to be financially literate? We can hire a good consultant who can help us in making our financial decisions by charging a certain fee, then why do we need to take the effort to learn about the fundamentals of savings, investing, budgeting, debt management, etc?
The answer to this is simple, if we don’t know these basic fundamentals we might end up ‘Overspending’ or ‘Over-investing’ and both of these are harmful in their own ways. If we overspend, we might have nothing to invest for future unforeseen emergencies. On the other hand, if we over-invest, we might not be able to enjoy the money we earn and live a frugal life. Our finance minister Nirmala Sitharaman ji while addressing the Rajya Sabha session said that – As on December 2020 there were Rs 26,697 crores lying unclaimed in around 9 crore Indian bank accounts which are not been operated for more than 10 years. These were the people who over-saved their money but could not enjoy that money nor could pass it to their future generations. This is where financial literacy comes to aid.
Managing Income
The major drawback is that people are only taught to manage income if they intend to make their career in that field. Thus, majority of young individuals are deprived of the information and education for managing their income. There is a major lack of financial planning in terms of health and life insurance which is a very important aspect of financial planning. Most of the people think that having huge cash balances is the only form of investing, thus they go on accumulating huge piles of cash at their homes, but the value of accumulated money never increases nor it enters the formal financial systems like banks etc and thus is of no use.
India is growing and expanding its base, and a good financial education would thus become an asset for people to get higher earning benefits in return for their investments.
Financial Literacy at the school level
The Indian government no doubt has been taking efforts lately to make financial education compulsory at the school level and for that launching some policies to improve the literacy rate but there is a basic problem – lack of implementation
At school children are taught to solve mathematical problems but are not taught to make decisions based on their outcomes, we are taught to measure the area of a square or the hypotenuse theorem which has little or no use in our daily lives but we are not taught to make budgets for our personal expenses.
The solution here is that children should be taught the basics about how to make monthly household budgets, how is a savings bank account opened and how to use it, what is a PPF account and how it helps is saving for the long term, what are the effects of compounding and how it works like magic in long term investing, etc. If children are taught all these concepts at the school level (itself instead of making them mug up the formulas to derive the answers to mathematical problems) children may become practically aware at a very young age.
Current Situation of India’s Literacy Rate
According to the report conducted by the Global Financial Literacy Excellence Centre, only 24% of the Indian adult population is financially literate which is the lowest as compared to many emerging economies. The reasons for India having the lowest financial literacy could be due to inter-state disparities, lack of formal training and awareness, and many others.
SEVA provides financial literacy at two levels:
1. Basic Financial Literacy: The basic Financial Literacy Course is compulsory for women applying for a loan for the first time: this is to ensure that they will fully understand the terms and conditions of the loan but also to teach them how to keep the records of their financial activity and the importance of savings. In basic financial literacy, we use more and more pictures so that semi-literate and non-literate women also can understand it easily. In basic financial literacy, we use more and more pictures so that semi-literate and non-literate women also can understand it easily.
2. Advanced Financial Literacy: The SEVA designed an advanced financial literacy course for its beneficiaries which focuses on business literacy. Under this program, SEVA provides information about budgeting, debt management, financial negotiation, marketing, etc. Additionally, for a Business
SEVA also provides financial literacy through the film which runs in SEVA & NIIT Foundation, Mobile businesses, and offices and explains different financial products and services to women clients entering the bank and foundation. The Program on Wheels delivers courses, including financial literacy training, to more remote areas of the state. Trainers use financial literacy flip charts, and games while providing training. Through the combination of these activities, SEVA has reached 4000+ women in the last 4 years.
Why Financial Literacy in India is Important?
Encourage active savings behavior. Individuals and young people aren’t able to manage their income. There’s a imbalance between consumption and savings. Savings and investment are alien concepts for the majority of the population. With a strong financial education, people effectively manage their saving and investment.
Develop credit discipline and encourage availing credit from formal financial institutions as per requirement. In the RBI Working Paper Series titled “Persistence of Informal Credit in Rural India,” 42.9% of the population borrow money from informal sources like commission agents and money-lenders. These non-institutional sources extend loans on high rates of interest. The firms are unable to manage their finances, hence, landing into the debt trap. With a strong financial education, small firms and owners will be able to make informed decisions and take advantage of resources available to them.
Manage risk at various life stages through relevant and suitable insurance cover. In the urban cities and metropolitan areas like Mumbai and Delhi, Individuals are unable to allocate their spending’s. According to the data published by The Hindu, while Investment in Fixed assets has been increasing exponentially, there has been a major lack of financial planning in terms of life and health insurance. Most of the people accumulate piles of cash at their home, rather than using it on investments. Such decisions are a testimony to the lack of financial planning. Thus, the value of the accumulated money never increases. With financial education, people will manage their finances effectively.
Inculcate financial literacy concepts among the various sections of the population through financial education to make it an important life skill.
Encourage participation in financial markets to meet financial goals and objectives.
Improve usage of digital financial services in a safe and secure manner.
India is growing and expanding its base, a good financial education would become an asset for people to get higher earning benefits in return.