Importance of Financial Literacy in India

Covid-19 taught many things to us. Many people lost jobs due to pandemic. And, it wasn’t easy to get new job. During such tough time, people understood the importance of savings, investments. You can earn more by investing some part of your monthly income in proper investment option. We need to invest it in proper investment option to gain more profit, to save tax, have money in hand for rainy days. It is very important to become financial literate irrespective of age, gender, city, lifestyle, etc. Lets read about financial literacy below.

Financial literacy means the skills and knowledge of finance which can be used to make financial decisions to achieve growth and success. Financial literacy includes how banking system works, how to use credit card, how to avoid debt. Financial literacy helps in generating more resources of income to meet one’s present and future needs.

The Organization for Economic Cooperation and Development (OECD) defines financial literacy as “A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.“

Everyone should know the basics of finance like managing money to be financially literate. But in India many people lack the basics of managing money, whether it’s savings, investing, buying insurance or emergency funds. Financial literacy in India lags behind that of many countries. According to a global survey, 20% of the total world population is Indian but only about 24% of the Indian population knows the basic financial concepts. Government since independence has made efforts to promote financial literacy. Financial literacy of common people is directly related to financial inclusion, which, in turn, plays a major role in economic growth of the country.

Need for Financial Literacy in India

The need to increase the financial literacy is now widely recognized by all stakeholders, including the policymakers, practitioners, bankers, researchers, and academicians across the globe.

In consonance with the OCED’s global paradigm, the National Strategy for Financial Education aims at:

• Spreading awareness about basic financial products, such as bank accounts which links new users to the financial sector.
• Educating the existing users in the financial sector to make informed decisions.
• Ensuring customer protection from risks and frauds by making them vigilant.

Way Forward for Financial Literacy in India

In order to promote financial literacy in India, individuals should be made aware of day to day terms related to finances like banking, insurance, benefits of credit cards, investments, taxation, etc. Financial knowledge should be given to children in school, like importance of savings, banking, investing, etc. With proper knowledge of financial concepts, elder children can start investing at early age. And, they can start investing from first day of their career to achieve more benefits and it helps in nation’s economic growth too. Basic financial education at the intermediate and college level must include:

• Understanding of financial planning
• Benefits of using basic financial products
• Effective money management
• Debt management
• Prioritizing needs over wants
• Understanding effective investment instruments, like SIP
• Understanding terms of EMI

The Reserve Bank of India (RBI) launched the National Strategy of Financial Education (NSFE) 2020-2025. The aim of this policy is to teach financial literacy concepts among ordinary people by encouraging them to save actively. It helps more and more people participate in the financial markets.

Read also: A Beginners Guide to Systematic Investment Plan

Over to you to decide

Financial literacy is knowledge of how money works: how you make, manage, invest and expand it. It includes balancing a chequebook and understanding personal tax and ways to save it and recognizing the best investment options and what are the current market trends.

Financial illiteracy exposes several undesirable scenarios in common people like: –

• Inadequate or non-existent retirement planning
• A plethora of credit options which increases debt risks if not managed
• Improper understanding of financial goals leading to poor investments 

Easy Steps to be Financially Literate

It is never too late to learn. It’s easy to develop smart, simple money habits by: –

Read as much as possible:

Reading is the best habit to gain knowledge. If you read everyday about finances, financial products, you stay updated with the market which helps in taking decisions. So, if you want to be financially literate then you have to learn the basics of finances and stay updated by reading everyday. Start with basics of market and then develop habit of reading economic magazines and newspapers like “The Economist”, “The Economic Times” etc. There’s also a lot of information available on the internet. There are plenty of finance-oriented blogs which can keep you updated on all things financial. “b4investing.com ” is here to help always.

Get expert’s advice

Many times, people don’t get time or they may not get confidence to take financial decisions so they can contact expert. There are financial organizations which make basics of finances clear. Such financial organizations have full-time staff to help and share their expertise so people be on right track. Many agencies offer professional financial advice for a fee. Financial advisors also help you to plan your finances in systematic way. They help you make budgets, manage debt and plan for future security.

Attend financial education camps

The Reserve Bank of India (RBI) has released a document titled “National Strategy for Financial Education Report 2020-2025.” This document recommends “5 C’s” approach for increasing financial education in the country. The approach focuses on Content, Capacity, Community, Communication and Collaboration. The report focuses on creating financially aware and empowered Indians. These policies work in the right direction to make India: a financially literate country. However these policies are new also.

Increase familiarity with your own finances

You have to put all your knowledge gained by reading in practical. You will not get complete confidence until and unless you use it practically. Financial literacy depends on habits as much as theory, make your own budgets, manage debts and plan for the future.

Read also: 9 Tips How to Manage Your Finances in a Systemic Way

The Takeaway

Financial literacy helps you make balanced decisions. Being aware if basic financial tenets help avoid bad investments, high debt, and accumulate wealth.

So, be financially literate and secure your future.

Be Educated!

Be Bold!!

But, Be Careful!!!

Happy Investing!!!