Financial Literacy is the ability to understand different areas and concepts of finance like financial planning budgeting, investment, savings, and much more. Digital literacy is the understanding and navigation of several digital platforms and analyzing their potential as a medium of communication. Digital literacy brings within its ambit, an array of new technological advancements to be used for effective and safe communication.
If one does not possess financial literacy then one is susceptible to making wrong financial choices that can negatively impact one’s financial stability. For a fast-growing and promising economy like India, it is very important that initiatives be taken by the government in order to achieve last-mile reach in terms of financial education so that the citizens can make informed choices and contribute to the larger economic growth.
The first ten years of the twenty-first century have witnessed global acknowledgment of the fact that it is necessary for the development of any country to spread financial literacy amongst its people. Combining the digital platform and financial facility, the digital-financial interface is the new medium that has revolutionized the experience of financial connectivity and interaction the world over. Introducing Universal Payments Interface (UPI) in India has been a remarkable endeavor in this direction.
This interface is regulated by the Reserve Bank of India and functions by immediate, real-time transference of funds among two bank accounts on a mobile platform. The ease of transaction, time-efficient transfer and the comfort of an individual’s location of choice make UPI an important tool in the achievement of an efficient and smooth financial network.
Financial Literacy in India
According to the Organisation for Economic Co-operation and Development (OECD), financial education means “The process by which financial consumers/investors improve their understanding of financial products, concepts and risks and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being”.
In simple language, financial literacy means awareness about the schemes, policies, and all the other services that the banks and financial stakeholders offer. India is a rapidly progressing economy where financial inclusion plays a major role. Similarly, financial inclusion means ensuring the inclusion of vulnerable groups of society, who are in need of state financial assistance, by ensuring their access to pertinent financial products and services.
To achieve this, financial education assumes a critical position as it will enable the dissemination of information and the establishment of understanding regarding the suitable products and services made available by banks and other financial institutions.
Importance of Financial Literacy
The importance of financial literacy is:
- Inclusive Growth and Financial Inclusion: Financial education assumes a crucial role in making consumers respond to the initiatives of the supply or the service provider side. It has always been the prime concern of the government to achieve social inclusion, of which financial inclusion forms the greatest part. Financial literacy, and education, play a critical role in making available the services and benefits that the weaker groups need so as to achieve the agenda of inclusive growth and sustainable prosperity.
- Familiarity and Ability: There are a vast amount of products and services available in the market. It has made it difficult for laymen to discern what option would best suit them. Hence, to make an informed choice, it is necessary to have financial literacy. Knowing about the schemes and options develops confidence, familiarity, and skills to administer.
- Freedom from exploitation: Financial literacy will assist in safeguarding individuals and the general public against manipulative financial schemes and the inflated interest rates charged by moneylenders.
- Prevention of over-indebtedness: Financial education will help to avoid over-indebtedness, improve the quality of services and make wise financial decisions.
- Promotion of entrepreneurship: Educated entrepreneurs who have small-scale businesses can benefit a great deal if a systematic national plan to impart specific financial knowledge is properly implanted. This is owing to the fact that making them aware of the new financial ventures and products will guide them in understanding the workings of market mechanisms and improve their business dealings.
- Positive Spill-over effects: when individuals and groups are made to have proper financial education, it can lead to multiplier effects on the economy. A household with a substantial amount of financial education would make regular savings and invest in the correct channels to generate income. The financial well-being of persons will in turn augment societal welfare.
- Making the Pension Responsibility an individual or personal affair and not that of the State/ Corporations: An individual who is financially literate would be in a superior situation to evaluate his/her own necessities and make savings in suitable schemes. This leads to a reduced strain on social programs and pension plans, and promote an economy that is tougher.
- Behavioral Change: The outburst of many financial products has made their usage grow quite rapidly without any refrain from the larger financial implications. There can be brought about certain degree of behavioral change by means of financial education. The latest global financial crisis has raised the question of whether the individuals’ lack of financial knowledge can result in making debt traps that a country cannot survive for long.
Government Endeavours To Strengthen Financial Literacy in India
There have been numerous initiatives taken by the government to spread financial literacy in the country:
National Strategy for Financial Education (NSFE):
The ultimate goal is to develop India as a financially aware and empowered nation so as to seek progress and smooth coordination between the people and the government in developing the economy of the nation. National Strategy for Financial Education has been prepared in 2012 to bring about a massive financial education campaign that would create awareness and would educate consumers on how to gain access to financial services, what are the products available, and how a change in the attitude of people can be brought about so as to “translate knowledge into behavior”.
As per the National Strategy for Financial Education, the key elements of the financial literacy module should be as follows:
- To understand the main financial products that one might need in the course of one’s life like the “bank accounts, insurance, retirement savings plans and securities market investments like stocks, bonds, and mutual funds.”
- Getting to learn about fundamental financial concepts like investment return, compound interest, annuity, diversification, present and future value of money, and so on and so forth.
- Being more aware of financial risks and prospects and developing skills and self-reliance to gain profit from them.
- Making well-informed financial choices about “saving, spending, insurance, investing and managing debt throughout one’s life.”
Project Financial Literacy
This is a central bank (RBI) endeavor that aims to disseminate information regarding its basic banking concepts to schools, colleges, economically weaker sections residing in rural and urban areas, senior citizens, defense personnel, and many more in the specific target group.
Under this initiative, RBI organizes trips of school and college students to the RBI headquarters and also conducts banking and insurance-related quizzes in schools (for classes VII to XIV) to create awareness about the general economy and bring about financial literacy. It also creates modules on General Indian Economics for the same purpose. There is also a Financial Literacy Week that is observed by RBI to create awareness and understanding of key topics every year “through a focused campaign.”