More than 75 per cent of Indian adults lacked a basic understanding of financial concepts, and over 80 per cent of women were financially illiterate, according to an S&P survey cited by the National Centre for Financial Education (NCFE) in the “Financial Literacy and Inclusion in India” report in 2019. The report highlights the country’s significant gaps and disparities in financial education making it a point to become financially literate.
The Reserve Bank of India’s (RBI) financial awareness campaign highlights the urgent need to address this issue. Since 2016, RBI has been organising the Financial Literacy Week around mid-February every year to help people understand financial concepts and their importance.
Some of its past awareness drives were themed around “Good Financial Behaviour, Your Saviour”, “Credit Discipline and Credit from Formal Institutions”, “Digital Financial Literacy”, etc., emphasising how significantly they matter in people’s lives regardless of age.
What Is Financial Literacy?
Financial literacy is understanding various financial concepts, including money management, budgeting, saving, investing, managing debts, retirement planning, and concepts like simple interest, compound interest, inflation, etc. Financial behaviour, attitude, and awareness of financial products are critical components of financial literacy.
Why Is It Important To Be Financially Literate?
Financial knowledge can help people improve their financial decision-making abilities and become financially independent. Educating oneself about how money works is vital to handling financial challenges and using funds best to create a financially stable future.
It is not unusual in India to see families losing financial stability after their breadwinners meet with an unfortunate incident. In most cases, the lack of knowledge and planning are the main reasons for instability. It is vital to have financial knowledge to make informed decisions.
For instance, people with savings or pensions will have no trouble in old age or post-retirement as they have planned it in advance. So, depending on your employment status, income, living expenses, need for a house, a car, etc., and cash flow at retirement, one must plan accordingly. Financial planning becomes more critical as people’s life expectancy increases.
Once you have understood the importance, several questions may arise in your mind. For instance, where and how much to invest to ensure your funds can outlive you? One must have proper knowledge of financial products and concepts to know these answers.
If you are financially illiterate and have an unstable income, you could opt for government social security and pension schemes that can still provide your basic needs. However, financial knowledge is vital for all ages or economic status for stability and mental peace.
How To Improve Financial Knowledge?
You can improve financial knowledge, whether it is for you or your children, in many ways.
Discuss With Family And Friends: Being financially literate can start at home. Discussing money with children can help improve their financial knowledge. This exercise will help you gain a basic understanding of the financial issues, but to gain more knowledge, you or your children can seek advice from someone more knowledgeable in the family or friends.
Professional Advice: You may also seek advice from financial advisors, certified financial planners, and registered investment advisors to gain financial knowledge.
Online Resources: Today, all types of information are readily available online, and finance is no exception. You can gain insights into financial products and concepts, from debit and credit cards to bank accounts, insurance, and interest rates, from the internet, newspapers and magazines. You can also take certificate courses on finance online or offline.
