Efficacy of Financial Literacy Programmes

Financial institutions- markets-instruments- services are lifeblood of an economy. These perform significant role in developing society. Modern societies have developed primarily by making judicious use of financial systems.

With rapid changes in the economic landscape, the members of society are engaged in varied economic activities. Advances in technology effect rapid changes in financial products- markets. Range of financial products is very different from the past. Decisions relating to these have implications for individual and social welfare.

This environment demands people to exercise caution for personal financial planning, investing and expending their resources. They need to understand nitty-gritty of financial services sector. An essential indicator of peoples’ ability to make financial decisions is their Level of Financial Literacy. 

Research evidence substantiates impact of financial literacy on peoples’ decisions and financial behaviour indicating that economic activities get a fillip when they are equipped with higher financial literacy levels. Lack of confidence especially among our youth and women due to low level of financial literacy, has implications for how citizens make financial decisions.

It is observed that even educated people are not necessarily savvy about money. In this scenario focused financial literacy programmes are imperative. Being literate financially is an essential skill in the present century.

 In common parlance, ‘Finance’ means the management of money and other assets. It includes investing, borrowing, lending, budgeting, saving, planning and forecasting. ‘Literacy Level’ varies from place to place and time to time. For common understanding, it could be explained as the ability to classify, understand, interpret, create, communicate, calculate, analyze, estimate and evaluate, using resources, associated with varying situations.

With the increase in general literacy level, the graph of financial literacy is also expected to surge. Putting together, the term ‘Financial Literacy’ is the ability to understand and effectively apply various financial skills in aforesaid activities.

It is the possession of updated knowledge and skill-set (called Investor Education) that allows an individual to manage one’s financial resources efficiently for future financial security. More specifically, ‘Financial Literacy’ could be described as an individual being educated about financial matters with a special focus on his personal finances.

It enables citizenry to make smarter financial management decisions that lead directly helps to protect the assets built by them over the period. It helps individuals become self-reliant-confident-motivated and allows them to make most of financial products available in the market to achieve financial stability.

In recent years, revolution in information and communication technology and internet has given birth to Digital Culture/Economy. Digital- Finance- Literacy- ‘Digital Financial Literacy’ are its constituents. Digital Finance encompasses broad range of financial product and services that enable individuals and companies to have access to various monetary transactions delivered through digital channels without the need to visit a financial technology provider (FinTech).

A certain level of financial sophistication is required in order to use digital financial products and services. Digital Financial Literacy could be termed as having the required knowledge, skills-set and necessary acumen to use digital devices for financial transactions.

This is interface between an individual’s basic literacy levels and his ability to use digital technology. Digital Financial Literacy is the marriage of all three paradigms: Digitization, Finances and Literacy. The digitization of financial products and services, and the consequent need to strengthen digital financial literacy has become an important component of the global policy-making agenda. Digital financial services have the potential to bring benefits to citizenry to promote financial inclusion of underserved population.

Significance of ‘Financial Literacy Programmes’ has increased in recent times. Academic organizations imparting Commerce Education have been organizing such programmes in collaboration with banks, insurance companies and capital market institutions to create financial awareness among common people.

The curriculum canvas of Commerce Education is spread over to Accounting, Finance, Taxation, Auditing, International Business and Business Legislation. The basic purpose of financial awareness has been related to judicious financial behaviour. It helps people develop a stronger understanding of basic financial concepts so that they can handle their money/assets in a better way.

However, to examine critically, the programmes being conducted are more marketing-oriented rather than to develop people in financial literacy. Banks, insurance companies and capital market institutions simply promote their financial products such as deposits, advances/loans, service products, risk coverage products, debt/equity instruments and the like. The core objective of financial literacy is, thus, relegated to the background.

In the context of J&K region, while perusing documentation for an agreement between a bank or an insurance company and a client, certain contradictions have come to the fore. It is a general practice that the information with regard to these agreements is not spread over for wider dissemination to empower the clients.

Take the case of Locker Facility provided by different banks. The terms of the agreement are around two dozen. All the terms are in support of the bank and all the risks are to be borne by the clients. To quote at least two conditions, the content of the affidavit speaks that the charge of the locker has already been taken on rent.

How come it is possible when in actuality the agreement is yet to be entered into between the parties with due consensus ad idem? Furthermore, the keys-one each- of the locker would remain in the possession of the bank and a client respectively.

This naturally means that the locker is in possession as well as in the custody of the bank and also the customer. Then how come the bank can escape a liability in case any damage is caused to the assets of the client? In this regard well-known Business Law Cases were taught to us in our Alma Mater (Islamia College Srinagar) by our revered teachers, way back in the year 1974, making a distinction between possession and custody. Based on the argument and above discussion, it can be easily deduced that:

Institutional efforts are needed to popularize the true Financial Literacy Programmes and their benefits to the citizens. Civil society and academic institutions must come together to develop focused thinking on the subject;

Financial Literacy Programmes, inter alia, must create awareness with regard to documentation and contents of the agreements entered into between the parties. This would surely ensure smile on the faces of the clients;

Institutions of Commerce Education should procure these documents and discuss the same as case studies in the class room in order to develop  critical thinking skill-set required under outcome based education;

Financial policymakers in our society should express deep concern about general lack of information and skills of personal financial matters. The efforts be made to fill up gaps with genuine Investor Education Programmes, identify individuals in need of financial literacy and the ways to improve upon the same;

Commerce faculty must actively participate in the varied Financial Literacy Programmes organized, from time to time, by the National Institute of Securities Markets (NISM), Mumbai. This would help institutions to revisit their literacy training programmes in order to create awareness effectively among the masses;

Financial Literacy Programmes would strengthen financial depth and lead to financial inclusion so that more and more people open and operate their accounts in banks and obtain risk cover in terms of policies offered by insurance companies; and

Institutions must launch awareness campaigns pertaining to financial products and services delivered through digital channels and address the needs of target audiences through tailored approaches. This would enhance citizenry trust in digital financial services. There is a bouquet of e-options that are safe, secure, convenient, quick and affordable in order to expand digital outreach in different forms.

Lastly, it is important that different players of our society get together at all levels and storm brains on the issue, taking help from professional knowledge and using skills that are needed for the purpose. This would certainly help the overall architecture of financial governance of our society to work smoothly in this digital economy.

The writers are former Commerce Teachers and Life Members of Indian Commerce Association and Indian Accounting Association.