The way of Financial Capability is through financial literacy: Indian and Global Scenario Asst. Prof. Prajakta Joshi N-12, Maurya Vihar, Near Sahajanand Society, Kothrud, Pune -38 Email – prajakta32@yahoo. co. in Contact no. - 9371207428 The way of Financial Capability is through financial literacy: Indian and Global Scenario Abstract In every stage of life people face challenges to take certain financial decisions. Financial illiteracy is inability to make informed judgments and effective decisions regarding the use and management of money and wealth which affects their family and society at large.
It is utmost important for a country to take steps for financial literacy in order to improve the standard of society society and economy of the nation. Financial literacy is the set of skills and knowledge that allows an individual to take appropriate financial decisions. The objective of the research is to understand financial literacy and its importance. It also aims to understand the current financial literacy initiatives that are taking place in India and other parts of the world.
Financial literacy is more important in country like India where large chunk of population is illiterate hence they do not have easy access to formal financial set up. This population has lack of knowledge about financial planning. The Indian government has insisting on the need for financial literacy and generating confidence among people who burnt their fingers by taking wrong decisions. The promotion of financial literacy in developing countries is timely and can be a win-win situation for poor people and financial service providers alike..
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Financial literacy skills can be applied everywhere viz. managing a wide range of individual, household, business, and community resources. The effective financial literacy is the best tool to help the society to deal with future needs as well as to deal with contingencies. Key Words: financial literacy, financial education, financial programs, financial planning Introduction: Financial decisions can be rigorous task. Making financial choices by comparing savings or borrowing options with different interest rates and term structures can cause a certain level of discomfort.
Sometimes a knowledgeable individual may need to rely on calculators or spreadsheets to make truly informed decisions. Investment decision involves some amount of risk; hence the number of investors are less as compared to the rate at which markets in India are growing. People hesitate to invest due to lack of awareness and proper knowledge of financial services available in market. This uncertainty is due to lack of information and understanding of investment basics. Creating informed investor is the major challenge for constant growth of Indian economy.
Investments may be in the form of fixed deposit, real estate, gold, mutual fund, bond and shares. As per Indian scenario people are least interested in investment is share market due to lack of knowledge. Only 1% of Indian population is active investor in capital market. Government of India has already taken steps to increase the awareness and knowledge of the population through various investor education programs. Financial literacy programs that teach individuals how to spend save and budget responsibly.
These initiatives should reach to the root level of Indian population. The awareness should spread among the farmers that consist of 70% of Indian economy. Objective: 1. To understand the financial literacy and its importance. 2. To learn about the Initiatives for Financial Literacy in the global context. 3. To study the efforts taken by various institutions for Financial Literacy in India. Literature Review: Lusardi and Mitche (2006, 2007), have conducted basic financial literacy test for both U. S. nd other countries and their research shows that many adults do not understand the difference between compound and simple interest; the characteristics of financial assets such as stocks and bonds; the benefits of portfolio diversification; or the important features of their own mortgages, Social Security and pension plans. Lusardi and Tufano( 2009), (van Rooij, Lusardi, and Alessie 2007), (Hastings and Tejeda-Ashton 2008) found that people with low financial literacy are more likely to have problems with debt, less likely to participate in the stock market and mutual funds.
Previous research has found that financial literacy can have important implications for financial behavior. Ajay Tankha, Development consultant of Sa-dhan, a self help group conducted study in India related to financial literacy and indicated that nearly 96% of the population across the country felt that they would not survive for more than one year if there is a loss of income. Worthington, AC, Predicting financial literacy in Australia, Financial Services Review, 15(1), Spring 2006, 59-79, used Logit models to predict financial literacy using the 2003 ANZ Survey of Adult Financial Literacy in Australia.
Factors examined include gender, age, ethnicity, occupation, education, income, savings and debt. The result shows Financial literacy is highest for persons aged between 50 and 60 years. Literacy is lowest for the unemployed, females, and those from a non-English speaking background with a low level of education. Research Methodology: The research paper is based on descriptive analysis. The secondary data sources are : 1. Websites 2. World economic forum report 3. Books 4. Journals Conceptual background: Definition of Financial Literacy:
Financial Literacy is the knowledge and ability of an individual to make informed and effective money management decision. Financial literacy can be achieved when a person develops financial knowledge and skill along with access to financial services, government policy, financial instruments and updates in tax structure. Financial literacy—the ability to process financial information and make informed decisions about personal finance—has received growing attention in the developed world, and recently, in the developing world, as a potentially important determinant of household well-being.
The term financial literacy is used often but many do not truly understand the definition. As Stone (2004) states, "financial literacy is the ability to read, analyze, manage and communicate about the personal financial conditions affecting material well being" (p. 1). The concept of financial literacy takes into consideration the ability to balance your check book or being able to read your financial statements. A better informed citizen can be more prudent in planning his personal finance consequently helps in strengthening the country’s economy.
It is important that people should accurately perceive their own economic decision Therefore there should be substantial contribution from government of India and other non- government organizations. Importance of financial literacy: In recent years, financial literacy has gained the attention of a wide range of major banking companies, government agencies, grass-roots consumer and community interest groups, and other organizations.
Interested groups, including policymakers, are concerned that consumers lack a working knowledge of financial concepts and do not have the tools they need to make decisions most advantageous to their economic well-being. Such financial literacy deficiencies can affect an individual's or family's day-to-day money management and ability to save for long-term goals such as buying a home, seeking higher education, or financing retirement. Ineffective money management can also result in behaviors that make consumers vulnerable to severe financial crises.
Financial literacy allows people to increase and better manage their earnings - and therefore better manage life events like education, illness, job loss or retirement. It also promotes understanding and acceptance of important political reforms, such as health care or pension reforms. While the significance of financial literacy has not yet been fully articulated and recognized by the international development community - or by policy makers and practitioners in developing countries - measures to promote and improve financial education are becoming more frequent.
The providers of financial literacy programs are a diverse group that includes employers, the military, state cooperative extension services, community colleges, faith-based groups, and community-based organizations. Commercial banks are also important providers of financial literacy education. All but two of the forty-eight retail banks responding to a recent survey by the Consumer Bankers Association reported contributing to financial literacy efforts in some way.
Many banks consider their engagement in this area a way to expand their customer base and promote goodwill, and such activities are often given favorable consideration in examinations for compliance with the Community Reinvestment Act. International Scenario of Financial literacy: The development in medical and technology field results in increase in life expectancy, however the person should also be sustain economically till he alive. Financial literacy has become an immensely popular component of financial reform across the world to retain and increase the income for future survival.
USA: Financial literacy promotion was started early in 1908 in United State of America, Edward A. Filene established American credit union movement to promote financial literacy in form of newsletters. .Some governments have devoted efforts to improve financial literacy. In USA many state governments require high school students to take financial education courses; the first such requirement took effect in Nevada in 1957. CNN Money has an outstanding overview of basic personal finance topics called Money 101. Each of the 23 topics includes several pages of information, and many of the subjects include an interactive calculator or tool.
The Federal government has a website called MyMoney. gov, which is “dedicated to teaching all Americans the basics about financial education. ” American Association of University Women California’s work with financial literacy program from 2008. They have developed six modules for college students and women. As response to the recent financial crisis, the United States government set up the President’s Advisory council on Financial Literacy in January 2008, charged with promoting program that improves financial education at all levels of the economy.
The Federal government also provides the Federal Citizen Information Center, which offers free (or cheap) publications on a variety of topics including finance.. Private foundations are also stepping up for promotion of financial literacy and its advantages. The Citi Foundation, funded by Citigroup, has supported a number of initiatives that look to improve financial literacy throughout the world. Currently, the program is headed by Microfinance Opportunities, a microenterprise resource center that promotes client-led microfinance, and Freedom from Hunger.
Australia: the commonwealth Bank has offered education and financial literacy initiative to young and adult Australians. Since the 1930’s, the bank has particularly focused on supporting the financial needs of young people through its Student Banking Program and the Dollars and Sense . Portland, Maine: An Institute for Financial Literacy is established in 2002. . It is nonprofit organization which supports financial literacy program. Indonesia: In the developing world, the Indonesian government declared 2008 ‘the year of financial education’.
Europe and Central Asia: Starting in 2005, the Europe and Central Asia Region of the World Bank initiated a pilot program in financial literacy, for the pilot program nine countries review were conducted that includes six states of European union namely, Bulgaria, Czech Republic, Latvia, Lithuania, Romania and Slovakia plus the Russian Federation and Azerbaijan, Croatia. The financial literacy initiative is currently being implemented by Pro Mujer (Bolivia), Teba Bank (South Africa), Al Amana (Morocco), Equity Building Society (Kenya), SEWA Bank (India), CARD Bank (the Philippines) and the Microfinance Centre (Poland), among others.
Indian Scenario of Financial literacy: 65% Indians lack financial literacy, according to Financial Service giant Visa, recently came up with a survey which declared India as one of the least financial literate countries among 28 countries. [pic] Source: Visa this survey is conducted in the period between February and April 2012 and interviewed 25,500 respondents in 28 countries including global superpowers like USA, Canada and Australia. Out of a possible score of 100, Brazil topped the charts with a 50. 4 followed by Mexico with 47. 8, Australia with 46. 3, USA with 44 and Canada with 43. in top 5 overall country ranking. India ranked 23rd as the report termed only 35% of Indian respondents as financially literate. In India, the Reserve Bank of India launched an first initiative in 2007 to establish Financial Literacy and Credit counseling centers throughout the country which would offer free financial education and counseling to urban and rural population. Initiatives taken for Financial Literacy in India: In India Financial Literacy initiative taken by various agencies to enhance financial capability of Indian population. These initiatives include: 1. RBI’s initiative on Financial Literacy
Initiative taken by Reserve Bank of India, Reserve Bank of India has undertaken a project titled “Project Financial Literacy”. The objective of this project is to propogate information regarding the general banking concepts to various target groups, including school and college students, women, rural and urban poor, defense personnel and senior citizens. The project has been designed to be implemented in two modules, one module focusing on the economy, RBI and its activities, and the other module on general banking. The material is created in English and other vernacular languages.
The information is distributed to banks, local government, schools and colleges through presentations, pamphlets, brochures, films and also through RBI’s website. The other measures implemented by Reserve Bank of India in this regards include conducting essay competition to promote financial awareness among school children on topic banking and finance. Recently RBI launched ‘RBI Young Scholars’ award’ scheme for outstanding students in order to generate interest in creating awareness of banking sector of the country. 2. SEBI’s initiative on Financial Literacy Securities Exchange Board of India has started financial education on a nationwide.
To undertake financial education to various target segments viz. school students, college students, working executives, middle income group, home makers, retired personnel, self help groups etc. , SEBI has empanelled Financial Educator Resource Persons throughout India. The Resource Persons are given training on various aspects of finance and equipped with the knowledge about the financial markets. These SEBI Certified Resource Persons organise workshops to these target segments on various aspects viz. savings, investment, financial planning, banking, insurance, retirement planning etc.
More than 3500 workshops have been already conducted in various states covering around two lakh and sixty thousand participants. Investor education programs are conducted by SEBI through investor associations all over the country. Regional seminars are conducted by SEBI through various stakeholders viz. Stock Exchanges, Depositories, Mutual Funds Association, Association of Merchant Bankers etc. SEBI has a dedicated website for investor education wherein study materials are available for dissemination. SEBI also publishes study materials in English and vernacular languages.
Under ‘Visit SEBI’ programme, School and college students are encouraged to visit SEBI and understand its functioning. SEBI has recently set up SEBI Helpline in 14 languages wherein through a toll free number, investors across the country can access and seek information for redressal of their grievances and guidance on various issues. (ref. www. rbi. org) 3. IRDA’S Initiatives on Financial Education Insurance Regulatory and Development Authority has taken various initiatives in the area of financial literacy. Awareness programmes have been conducted on television and radio and simple messages about the rights nd duties of policyholders, channels available for dispute redressal etc have been propagated through television and radio as well as the print media in English, Hindi and 11 other Indian languages. IRDA conducts an annual seminar on policy holder protection and welfare and also partially sponsors seminars on insurance by consumer bodies. IRDA has done a pan India survey on awareness levels about insurance. IRDA has also brought out publications of ‘Policyholder Handbooks’ as well as a comic book series on insurance. A dedicated website for consumer education in insurance has been launched. 4. PFRDA Initiatives on Financial Education
The Pension Fund Regulatory and Development Authority, India’s youngest regulator has been engaged in spreading social security messages to the public. PFRDA has developed FAQ on pension related topics on its web, and has been associated with various non government organizations in India in taking the pension services to the disadvantaged community. PFRDA’s initiatives have become more broad-based with direct mass publicity on NPS – both as individual model through POPs and group models through Aggregators. PFRDA has issued advertisements in print media and electronic media through radio and television.
PFRDA appointed intermediaries are called Aggregators who are directly responsible for pension awareness mostly in vernacular languages and in line with socio-economic sensibilities 5. Market players Initiatives on Financial Education Commercial banks are realizing that they are missing out on large segment of financially illiterate and excluded segment of prospective customers. Major financial institutions are spreading awareness through Financial Literacy and Counseling Centers and Rural Self Employment Training Institutes on financial literacy.
The objective of these centers is to advise people on gaining access to the financial system including banks, creating awareness among the public about financial management, counseling people who are struggling to meet their repayment obligations and help them resolve their problems of indebtedness, helping in rehabilitation of borrowers in distress etc. Some of these credit counseling centers even train farmers/women groups to enable them to start their own income generating activities to earn a reasonable livelihood. Similarly, many Stock Exchanges, Broking Houses and
Mutual Funds have initiatives in the field of financial education through conducting of seminars, issuance of do’s and don’ts, and newspaper campaigns. Insurance companies too, carry out campaigns and other educational activities for generic education in insurance. 6. Other Measures Other than the Reserve bank and other regulators, various NGO’s in the country are also spreading financial literacy in the country. Sanchayan is a NGO dedicated exclusively to spreading financial literacy and awareness among the youth and adults from low-income background.
Sanchayan conducts free workshops for the underprivileged youth on topics ranging from the basics of banking, credit cards and PAN cards to the investing in shares and mutual funds, so that these youth can become financially aware and also a part of the mainstream banking and financial services industry. Indian School of Microfinance for Women through its Citi Center for Financial Literacy (CCFL) has formed a network of partner organizations named National Alliance for Financial Literacy (NAFil) to take financial literacy as a movement across the country.
Also Manndeshi Udyogini Business School for Rural Women: HSBC has collaborated with Mann Vikas Samajik Sanstha in Satara to provide financial literacy and management skills to girls and women with no formal education Conclusion and Recommendations: It is a need of an era to understand the concept of financial literacy for rapid progress of economy. The financial literacy is not restricted only to small savings but it is also useful for how to use credit responsibly, fund management, minimize financial risks, maximization of profit and derive long-term benefits of investment.
Financial literacy movements have already started globally. India has also made rapid progress in the field of financial education through various programs initiated by government and other agencies. In this context the following recommendations are worth notable to increase the financial literacy of the country. 1. Financial literacy program should be the part of academic syllabus from primary education. 2. Special program should be designed for woman who develops the cultures in the family, this can be implemented through anganwadi teachers and self help groups. 3.
In rural area program should be designed in regional language and should be presented in form of dramatics or street play for their better understanding. 4. In advance stage the programs on investment in capital market should be introduced in easy language for educated middleclass. 5. There is a scope for further study whether financial education programs are effective in improving financial literacy and financial behavior. REFERENCES: 1. A Survey of the Banking Industry'' (July 2001) 2. Dean Roy Nash, FINANCIAL LITERACY: AN INDIAN SCENARIO, Asian Journal of Research in Banking and Finance. 3. Eikmeier, B. J. (2007).
Trends drive opportunities for financial planning for women. Journal of Financial Planning, 20(6),6. ry of Low-income Students: Literature 4. Frenette M. & Robson, J. , (2011). Financial Literary of Low-income Students: Literature 5. implications for financial education. Business Economics, 35-44. 6. Lusardi, A. (2009). Financial literacy, retirement planning, and retirement wellbeing: Lessons 7. Lusardi, A. (Jan 2007). Financial literacy and retirement preparedness: Evidence and 8. Lusardi, Annamaria, and Olivia S. Mitchell, 2006. “Financial Literacy and Planning: Implications for Retirement Wellbeing. Pension Research Council Working Paper No. 1. viewed December 28, 2012. 9. Lusardi, Annamaria, and Peter Tufano. 2009. Debt Literacy, Financial Experiences, and Overindebtedness. NBER Working Paper n. 14808. 10. Stone, G. (2004, June). Loma. Retrieved July 17, 2009, from: www. loma. org 11. Tankha. A. 2011. Financial literacy: concept and its importance in India. Vol. 2 Issue 4, April 2012, ISSN 2249 7323 12. Worthington, AC, Predicting financial literacy in Australia, Financial Services Review, 15(1), Spring 2006, 59-79. 13. www. commbank. com. au 14. www. worldbank. org 15. www. financiallit. org 16. www. aauw-ca. org
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