Why Financial Literacy In India Is Important Now More Than Ever Before?
The current financial education landscape paints a very dismal picture showing that more than 76% of India’s population is unaware of basic financial concepts. For a country that constitutes 20% of the world population, India is lagging behind most economies in financial literacy. Being a developing nation, a large chunk of the population lives right at the edge of the poverty line. It is blissfully unaware of basic financial concepts that are potentially life-altering.
Are financial institutions to blame?
Traditionally, financial knowledge has been closely guarded by financial institutions. But now, there has been a steady evolution.
Changes in consumer habits and financial products have made it hard for Indians to manage their finances. The fluctuating amounts of liquidity in the Indian economy could be one factor.
Lending rates, access to credit, and more have been instrumental in allowing access to liquid capital in the market.
As a result, there’s a lot more knowledge on how one should spend their money, and not enough about how money should be saved.
Why financial literacy is more important now than ever.
When it comes to financial literacy, the playing field is far from being level. Despite the economic growth and promising GDP numbers, the gap between the haves and have-nots is wider than ever. And with a recession looming around, this gap will only widen because time has proven that crises don’t affect us all equally. The less financially privileged are always worse hit.
There are myriad savings and investment products available today. Many of these products are sophisticated to understand, requiring customers to select from varying offers that provide different interest rates and maturity dates and decisions around these cannot be effective without adequate knowledge. These choices impact taking the right loan or investing to achieve a goal.
Even with so many instruments at one’s disposal, planning long-term still poses a challenge to many, if not all Indians. Retirement planning is one such example. Earlier, companies shouldered the responsibility of financially sponsoring their employees for most of their retirement, but the tables have now turned, and the onus of planning lies with the people only. Pension funds and retirement benefits were provided by the company. Today, pensions are now a rarity, and even if it is considered, the amount provided is insignificant.
Decisions around choosing the right plan and investing the right amount hence become paramount now that retirement planning is majorly borne by the people and inadequate or half-baked knowledge can prove to be detrimental.
The ever-changing financial landscape
The financial environment is dynamic. The economy, now a global one, depends on several influencing factors. The changing environment created by technological advances like electronic trading and investment has made financial markets swifter and more volatile. With this, carving out a financial roadmap can be challenging.
The most beneficial development in financial technology is credit cards. Today, there are several types of credit cards available in the market. The ability to easily access credit is a credit card’s primary benefit. You can use a credit card now and pay for your purchases later since credit cards operate on a deferred payment basis.
The most common types of credit card include cashback credit cards, rewards point credit cards, travel credit cards, fuel credit cards, and lifetime credit cards. Each of these cards has distinctive features and offers many benefits.
The dawn of financial awareness
Circumstances in the past couple of years led people to explore other avenues to make the most of their money. Job loss and salaries being slashed led to the advent of measures to manage money better. Topics surrounding inflation, mutual funds, diversification, saving taxes, and various others have taken the internet by storm, which brought about a change in the behaviour of individuals.
Retail trading saw a dramatic increase, with the number of Demat accounts skyrocketing over the last couple of years. Mutual funds became the go-to investment avenue for newbies and are still the most popular mode for growing money today. 2021 saw a record number of IPOs launched, with a collective amount of over ₹1.18 lakh crores, the highest amount raised for IPOs in a calendar year.
New-age entrepreneurs are taking charge.
Despite the money crunching year before, all this showed that people are ready to explore opportunities to grow their money with complete awareness of their risks. The trend of personal finance was bolstered when entrepreneurs, backed by technological experience, ventured into opening companies that aided people to invest with ease.
Companies like Fi Money, focusing on providing banking services, took the experience one step further by embedding several banking features into a super app that can be done with a few clicks, which otherwise would require a visit to a bank. Investing in mutual funds is now done with just a few clicks, and users are also shown complete details of each fund before finalising their choice of investment. Mutual funds investing on Fi Money can be automated, allowing users to invest daily, weekly or monthly. It doesn’t stop there – users can even make condition-based investments – with a set amount of money going into a mutual fund each time a user shops online.
Additionally, Fi Money also helps inculcate saving habits using FIT rules, a unique feature that sets aside a small portion that can be invested in a financial instrument after accumulating a certain amount.
The bottom line
Any improvement in financial literacy will have a compounding effect on people and their ability to plan for the future. Topics around money and finances need to be encouraged and talked about more often in Indian households. Concepts like budgeting, debt, managing debts, savings and investing need to be stressed and taught more rigorously right from the early days in the classroom of schools to tackle the menace of financial illiteracy.
The present “hoarding money” mentality of the people is also a cause for concern, indicating that traces of financial literacy are nowhere to be seen. This is where campaigns, seminars, and education on financial literacy can be so effective. Financial literacy can be the difference between drowning in unregulated debt or inflation or breaking free by diversifying your money and making the most of the returns.