Skip to main content

Financial literacy? 76% adults do not understand basic concepts


By Moin Qazi*
Finance is the glue that holds all pieces of our life together. Ideal financial societies are those which provide safe and convenient ways of managing these simple monetary affairs. This philosophy is known as financial inclusion. It is providing financial tools to people —tools that people can afford, that are safe and properly regulated, that people can access conveniently from institutions that treat them with respect. These tools enable them to save and to responsibly borrow—allowing them to build their assets and improve their livelihoods. The term most buzzed in this respect is “the unbanked”—usually defined as people who don’t have a traditional savings account. These are the people who have to be brought into the orbit of formal finance. Financial services are like clean water and electricity .But opening a account does not ensure the account is used.
Today, digital technology and mobile phones offer unprecedented opportunity to connect poor people to services such as savings, loans, insurance and payments. But owning a phone or even opening a digital account does not ensure the account is used. Two-thirds of world’s 299 million mobile money accounts are dormant. India remains among the most cash-intensive economies in the world, with a cash-to-GDP ratio of 12%. Around 97% of all transactions in the country are carried out in cash, which explains why India remains among nations with the lowest access to digital payments.
In a digital world, safety and security is the topmost priority for everyone. Remaining safe is an individual’s own responsibility which has to be taken seriously. Payment providers can put in the most fool proof systems in the world but the human element of payments and hence actions resulting in fraud cannot be emphasized enough. Whether it is reducing risk, improving uptake and usage, enhancing consumer protection or avoiding over-indebtedness.
In India financial inclusion received a steroidal boost with Prime Minister’s Jan Dhan Yojana (PMJDY). By January 4, 2017, there were over 265 million accounts under the scheme. India earned a place in the Guinness Book of World Records with a citation: “Most bank accounts opened in one week as part of the Financial Inclusion Campaign is 18,096,130.” But a disquieting feature is that public banks, regional rural banks (RRBs) and 13 private lenders have reported that as on 24 March 2017, 92,52,609 accounts were frozen under the PMJDY due to lack of transaction in the last one year. A survey of these accounts found that only 33 per cent of all beneficiaries were ready to use their Rupay cards. The others were bewildered by the complicated PIN and activation procedures.
Merely opening physical accounts as flag posts of financial identity would not help unless they are actively used by people for managing their money. To make this possible people have to be imparted an ability to understand and execute matters of personal finance, including basic numeracy and literacy, budgeting, investing, and risk diversification. This skill is known as financial literacy. It is a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and ultimately achieve individual financial well being.
According to a global survey by Standard & Poor’s Financial Services LLC (S&P) less than 25% of adults are financially literate in South Asian countries. For an average Indian, financial literacy is yet to become a priority. India is home to 17.5% of the world’s population but nearly 76% of its adult population does not understand even the basic financial concepts.
On account of lack of proper awareness and failure of institutions to properly guide them, people buy insurance policies without proper planning and give up midway because they don’t have money to pay the premium. Aggressive selling prevents the agents from properly assessing the consistency n income streams of the buyers for servicing their policies.
The customers end up losing heavily as penalties are very harsh. The Insurance Regulatory and Development Authority of India (IRDAI), in its Handbook on Indian Insurance Statistics 2015-16, has provided persistency figures of the life insurance industry—and they are not looking good. For FY2016, the life insurance industry, on average, had a persistency of 61% in the 13th month, which means: 1 year after the sale, only 61 out of every 100 policies were renewed.
Persistency measures how long customers persist with their policies. By the 5th year of policy sale, 16 out of the 24 life insurance companies couldn’t retain even a third of the policies. 5 years after being bought, two-thirds of the life insurance policies are no more. This shows the huge money customers are losing on account of bad financial planning.
It has been found that financial education programmes focused on just imparting knowledge rarely deliver impact unless they are backed by a suitable product, including the support to use the product. A recent UNDP survey on financial literacy programmes in India revealed that in areas where a service provider was involved in the programmes, the participants had better understanding of products and they had been using the products regularly. Some banks use a decision tree to help customers open the saving accounts that match their needs. The process of going through the decision tree in itself leads to understanding of improved product features by customers.
Similarly, in one model, a bank undertook a project to deliver financial education training to young women in rural communities through a cascade training model where core trainers trained peer educators, who in turn trained community members. These examples provide evidence that using a model that involves experiential learning and use of products has greater chances of success.
To use financial services to their full potential, the low income people need products well suited to their needs and appropriate training and education for adapting to these financial services. Bringing this about requires attention to human and institutional issues, such as quality of access, affordability of products, familiarity and comfort in use, sustainability for the provider of these services, proper training and outreach to the most excluded populations.
The issue is lot more nuanced than what we are seeing today. Nuances change from culture to culture and consumer segment to consumer segment. The consumers will come into the formal financial sector and embrace the new opportunities believing that if they change their behavior and exert the effort to get into the new world then certain specific pains will disappear. We have thus to address real pains, not just offer benefits.
*Development expert

Comments

TRENDING

Eight years of empowering tribal communities through water initiatives in Chhattisgarh

By Gazala Paul*   In the heart of Chhattisgarh, amidst the echoes of tribal life, a transformative journey has unfolded over the past eight years. The Samerth organization has diligently worked to elevate the lives of indigenous communities in the Kawardha district through the project, "Enabling Baiga Community to access safe drinking water." 

Martin Crowe played instrumental role in making New Zealand a force in world cricket

By Harsh Thakor* Late Martin Crowe was the perfect manifestation of how mere figures could not convey or do justice to the true merit of a batsman. Crowe was arguably the most complete  or majestic batsmen of his era or the ultimate embodiment of batting perfection, or the classical batsmen. He perished 7 years ago, due to a rare and aggressive form of cancer, follicular lymphoma, which originated in 2012. In September, we celebrated his 60th birthday but sadly he left for his heavenly abode.

Regretful: Kapil Dev retired not leaving Indian cricket with integrity he upheld

By Harsh Thakor  Kapil Dev scaled heights as an entertainer and a player upholding the spirit of the game almost unparalleled in his era. In his time he was cricket’s ultimate mascot of sportsmanship On his day Kapil could dazzle in all departments to turn the tempo of game in the manner of a Tsunami breaking in. He radiated r energy, at a level rarely scaled in his era on a cricket field. Few ever blended aggression with artistry so comprehenisively. Although fast medium, he could be as daunting with the ball as the very best, with his crafty outswinger, offcutter, slower ball and ball that kicked from a good length. Inspite of bowling on docile tracks on the subcontinent, Kapil had 434 scalps, with virtually no assistance. I can never forget how he obtained pace and movement on flat pancakes, trapping the great Vivian Richards in Front or getting Geoff Boycott or Zaheer Abbas caught behind. No paceman carried the workload of his team’s bowling attack on his shoulders in his eras muc

How the slogan Jai Bhim gained momentum as movement of popularity and revolution

By Dr Kapilendra Das*  India is an incomprehensible plural country loaded with diversities of religions, castes, cultures, languages, dialects, tribes, societies, costumes, etc. The Indians have good manners/etiquette (decent social conduct, gesture, courtesy, politeness) that build healthy relationships and take them ahead to life. In many parts of India, in many situations, and on formal occasions, it is common for people of India to express and exchange respect, greetings, and salutation for which we people usually use words and phrases like- Namaskar, Namaste, Pranam, Ram Ram, Jai Ram ji, Jai Sriram, Good morning, shubha sakal, Radhe Radhe, Jai Bajarangabali, Jai Gopal, Jai Jai, Supravat, Good night, Shuvaratri, Jai Bhole, Salaam walekam, Walekam salaam, Radhaswami, Namo Buddhaya, Jai Bhim, Hello, and so on.

Towards 2024: Time for ‘We the People of India’ to wake up before it is too late

By Fr Cedric Prakash SJ*  It is Constitution Day once again! We, the people of India, gratefully remember 26 November 1949 when the Constitution of India was passed and adopted by the Constituent Assembly. The Constituent Assembly comprised women and men of distinction, who were able to represent the heart and soul of the people of India without fear or favour. They gave of their best, so that we may a visionary Constitution, which would be the mainstay for and of democracy in India!

Ceasefire a tactical victory for Palestinian resistance, protests intensify across globe

By Harsh Thakor*  The Zionist leadership and Netanyahu’s government were compelled to concede the defeat of their first attempt after almost 50 days of daily fighting in the Gaza Strip.  Netanyahu was forced to concede that he was unsuccessful in suppressing the Palestinian Resistance; and that the release of the prisoners was only plausible because they accepted Hamas’ terms.

Odisha leadership crisis deepens: CM engages retired babus to oversee depts' work

By Sudhansu R Das  Over decades, Odisha has lost much of its crop diversity, fertile agriculture land, water bodies, employment potential, handicraft and handloom skills etc. The state has failed to strike a balance between the urban and rural sector growth; this leads to the migration of villagers to the urban areas leading to collapse of the urban infrastructures and an acute labor shortage in rural areas.  A large number of educated, skilled and unskilled Odia people have migrated to other states for higher education, quality jobs and for earning livelihood which plummet the efficiency level of government departments. Utmost transparency in the recruitment and promotion in the state government departments will improve governance mechanisms in the state.  "No near and dear one approach" in governance mechanisms can only achieve inclusive growth for the state on payment basis. This is a moral hazard. When so many educated young people seek employment outside the

1982-83 Bombay textile strike played major role in shaping working class movement

By Harsh Thakor  On January 18th, 1982 the working class movement commemorated the 40th anniversary of the Textile Workers Strike that lasted for 18 months, till July 1983. It was landmark event that played a major role in shaping the working class movement. With more than 2.5 lakh workers from 65 textile mills joining in this strike for almost two years, this strike became one of the most significant strikes in terms of scale and duration All democrats should applaud the mill workers’ united battle, and their unflinching resilience an death defying courage continues to serve as a model for contemporary working-class movements. Many middle class persons harboured opinions that the Textile workers were pampered or were a labour aristocracy, ignorant of how they were denied wages to provide for basic necessities. The Great Bombay Textile Strike is notably one of the most defining movements in the working class struggles in Post-independent India. Bombay’s textile industry flourished in

Massive tropical deforestation: Big finance's $307 billion go to forest-risk commodities

A note on report by Forests & Finance coalition -- Rainforest Action Network, TuK Indonesia, Profundo, Amazon Watch, Repórter Brasil, BankTrack, Sahabat Alam Malaysia and Friends of the Earth US: *** A new report released on ‘Finance Day’ at COP28 by the Forests & Finance Coalition , provides a comprehensive look into the role big finance plays in driving deforestation, biodiversity loss, climate change and human rights abuses in tropical forest regions. The report reveals that since the Paris Agreement, banks have pumped over $307 billion into high risk forestry and agriculture companies linked to tropical deforestation, proving that the policies of major global banks and investors are failing to prevent continued widespread forest and biodiversity loss.

20% of Indian businesses have no emission plan in place despite climate emergency: Report

By Jag Jivan   New research underlines urgent need for strategies and transition plans to combat climate change, remain successful and meet stakeholder expectations.