Fussing over penetration

Mention financial literacy and several opinions pour in over the lack of it and that it has all to do with people not being able to understand finances. This magazine has been relentlessly pursuing the task of spreading financial literacy for people to understand about money. I believe we have been successful in doing our bit given our 17 years of existence. I will also share our role beyond the magazine in this quest by partnering with industry players in conducting on-ground activities to promote financial literacy.

The learning from such activities is very useful in understanding what most financial consumers really want. In a recent interaction with students at a professional college, I was impressed by their curiosity on the functioning of stock markets. One of the boys asked innocently—when stock markets gain, who bears the loss? I was trying to explain how the value of investments grows when the economy grows, and there is actually no loser in this process. But it did strike me that from his point of view, a gain always came at the expense of a loss somewhere.

Most often, and may be inadvertently, like several other professionals, financial services professionals speak a language which is easy for them to relate to, but not for others. For instance, a car mechanic will rattle off carburettors, differential and timing belt, or, an airline staff will talk of check-in and hand baggage (even when you may be carrying both of them in your hand). Similarly, people in the financial services industry, too, get drawn into uttering jargon. Sum assured, diversification, reinsurance, health rider, repudiation, asset allocation...the list is endless.

Yet, most discussions over the way Indians consume financial products centre on penetration. India’s insurance penetration was reported to be 3.3 per cent in FY15 by global reinsurer Swiss Re, earlier this year, while mutual fund penetration is about 8 per cent as per the Mutual Fund Summit Report 2015. It is a different matter that penetration is calculated on the basis of premiums as a percentage of GDP in the case of life insurance and, in the case of mutual funds, it is assets under management as a percentage of GDP. Since debt funds constitute over 70 per cent of the total assets, retail investor penetration in mutual funds is much lower in reality; under 4 per cent.

Instead of statistics on financial penetration, which is linked to the GDP, it will be better to evaluate how many lives are insured, how many individuals have mutual fund folios and how many active accounts do banks have for a meaningful inference on how financially-evolved we Indians are. Slicing and dicing data can come much later. Like everything else, Indian consumers are different and so should be the matrices to evaluate our financial quotient.

nk@outlookindia.com