India is home to 17.5% of the world’s population but nearly 76% of its adult population does not understand even the basic financial concepts. According to its literal definition, financial literacy is the ability to use skills and knowledge to take effective and informed money-management decisions.
For a country like India, this plays a bigger role as it is considered an important adjunct to promotion of financial inclusion and ultimately financial stability. Financial literacy and financial stability are two key aspects of an efficient economy. Financial literacy enhances individuals’ ability to ensure economic security for their families.
Need to reach out
In India, on one hand, there is a need to reach out to lower income groups and economically weaker sections, and on the other, to millennials who are hyper-connected and require tailor-made financial products but have limited awareness of the possible financial solutions.
Currently, only 35 per cent of Indians have bank accounts, against 63 per cent in China. Empirical evidence points to the fact that digital efforts like video clips, short films and interactive quizzes on financial education have had a far greater impact than the traditional medium. Digital fluency is expected to increase with the government’s initiatives such as Digital India.
The recent mammoth exercise of demonetisation should help bring many more people to the organised sector and thereby opening up possibilities for financial inclusion and literacy.
Certain erroneous beliefs
In India, there are also certain erroneous beliefs associated with financial literacy, the most common being the myth that one who is ‘literate’ or ‘rich’ is also ‘financially literate’. Another myth is that financial literacy is more important for adults. However we can achieve the desired results from financial literacy only when we start educating our children. But financial crisis may come to anyone, irrespective of your age and the wealth you possess. So it is advisable to be financially literate to avoid the crisis.
There will be time when you have plenty of bank balance and investment options. Where should you invest? What would be the return? How much return do you want and why? All these questions will be answered once you are financially literate and aware of the financial repercussions. There may be time when you have less money and lesser investment options, but high need of money in coming day. Should you at all invest then? If yes, then in which segment? How fast would the investment multiply with time? One needs to have a strong grasp on current economic scenario and financial happenings to tackle such questions.
About financial know-how
Financial crisis may happen to an individual or a group of companies. If individual, knowing economic condition, knowledge about financial components etc would help you to overcome the crisis. But the same may happen to an organization also. Hence it is desirable to teach all the employees about financial know-how and current affairs. During crisis, company, as a single entity, shall be protecting you from the uncertainties. Thus hiring financial experts or consultants is highly critical in large firms for significant decision making and financial implementations.