There is no shortage of experts in the world of financial literacy. They furiously make online videos, organize social media events and live investment workshops, and publish content. Despite all that effort, the number of people putting their life savings into financial assets is too small compared to the money that finds its way into property and gold. Considering India’s population, less than 4% choose mutual funds or equity-linked assets. Among major global economies, India has the lowest household exposure to equities at 4.7%. The number is three times more for Europe and four times for the US.
Analysts turn the low penetration of financial assets in Indian households as an opportunity. They believe the ‘financialisation of savings’ could lead to a steady money flow into equity markets. While the English-speaking, primarily urban population has a relatively high tendency to save and invest across financial assets, a vast population has yet to transition from tangible assets.
Financial literacy is not merely answering a few questions about interest rates, rates of return, or inflation. It needs much more work. In a research paper published in November 2023 on Financial literacy across different states of India, authors Priyadarshi Dash and Rahul Ranjan argue that financial literacy can be estimated based on financial knowledge, financial behaviour, and financial attitude. They use ownership of financial assets to bracket the level of financial literacy.
So, if you only own bank deposit accounts, you have an elementary range of financial literacy. Add credit or debit cards and move up the ladder to a moderate level. The study said that you are considered at an advanced level of financial literacy if you have deposit accounts, credit or debit cards, and e-wallets. Most individuals possess an elementary level of financial literacy at 42.8%, while 20.8% are moderately literate. A third of the people are financially illiterate in India, and only 4.2% have advanced financial literacy.
Financial education needs a massive overhaul. There is a need for an integrated approach towards financial literacy from stakeholders. Presently, the government, Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, and industry bodies all conduct their financial literacy programmes. They target their product categories and propagate information. Public events are held to raise financial awareness across the country every day. However, there is very little measurability for the success of financial literacy initiatives.
You are not financially literate if you take a one-off online test. A survey in America showed that 57% of Americans are financially illiterate. That is in a country where an equity cult exists. If financial literacy material in its current form is not effecting any spectacular change, it is time to revisit the concept.
Financial literacy is an everyday skill. Besides knowledge, you must have the risk appetite to execute a financial decision. More importantly, you must make an informed decision. The present form of content primarily targets an English-speaking, affluent, urban audience. There is a regional translation that goes with every package of financial literacy content. However, considering the research of Dash and Ranjan, it is clear that it will take long for non-metro and other centres to catch up.
The government needs to think hard about an integrated approach towards financial literacy. The buck stops at the central government in New Delhi. Financial literacy needs to be saved from the fragmented approach taken.
In your financial life, you will use a bank account, buy insurance, and use stockbroking services to manage your money. The integrated approach needs to focus on the user needs for financial literacy and related outcomes and not on industry and products. For that, a standing committee of experts that reports to the finance minister can put together broad guidelines.
Incentives can be given to mutual funds or insurers to create a holistic content strategy for a financial literacy programme. The fragmented approach has created quacks on digital and social media. While some help you move forward, there is very little outcome-based dissemination of information.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)