Financial literacy needs a flip

It is in the interest of banks, financial institutions, and the general public
Financial literacy needs a flip
Representational PhotoFile/ GK

Last week, the Reserve Bank of India (RBI) rolled out the weekly financial literacy campaign “Go Digital, Go Secure”. The apex bank is undertaking a mass media campaign during the entire month of February to disseminate essential financial awareness messages to the general public.

Observing financial literacy week is a permanent feature in the RBI’s calendar of activities since 2016 to propagate financial education messages on various themes among the general public across the country.

By now all of us are fully aware about the multifarious impact of the ongoing pandemic, not only on the physical health of the people, but financial health too.

The pandemic has largely exposed inadequate financial literacy mostly among the vulnerable and marginalized sections of the society.

This financial illiteracy has added more woes to the economic problems faced by the households during the ongoing pandemic. In a way, it has been one of the impediments in economic growth of the country.

The outbreak of pandemic and its unpredictable nature has necessitated the use of digital platforms for financial transactions. From mobile banking to online payments and insurance; we have witnessed a never-seen-before surge in the number of online financial services users.

This has made financial literacy inevitable among masses as they have no alternative but to get to know about the online system of financial products and services.

According to data, the number of transactions with respect to digital payments in India grew 5x from 1,004 crores (10.04 billion) in 2016-17 to 5,554 crores (55.54 billion) in 2020-21. Furthermore, the value of fintech transactions is expected to rise at a CAGR of 20% to US$ 138 billion in 2023 from US$ 66 billion in 2019.

Notably, this mass movement of people towards digital transactions has also given rise to huge concern over the security of the data as we have been witnessing a surge in online financial transaction frauds. So it is here banks have to lay emphasis on awareness programs to be run consistently across their geographies.

They have not only to educate every citizen, be it a literate, illiterate, a farmer, teacher or even high-up of any department or company about the available modes of making cashless transactions, but at the same time, banks have to alert their customers about the dangers while being on an online platform. They have to educate them about safety measures while conducting online transactions.

So, in the given circumstances, financial literacy holds the key to help the people to navigate out of the virus-induced financial problems and also be future-ready to handle digital transactions in a secure way.

Financial literacy doesn’t particularly mean to inform people about the products and services of a particular bank. It’s most importantly more about managing money effectively and helps the people to keep the economic cycle in motion to create wealth. Let me share a tale of a school peon to explain ‘what and why’ of financial literacy.

The peon working in one of the schools in Srinagar city had a monthly earning of around fourteen thousand rupees. A marketing executive of an insurance company at a bank branch where he was having a basic savings account conned him into buying an insurance plan on the pretext that he would be getting double the amount of his investment within 4-5 years only with an exit option after three years.

Lured by this offer, he invested around Rs.16000 per year for three years. When he asked the insurance company to pay back his money with profit, he was shocked to learn that his capital investment had lost almost 20 percent of the value due to ‘prevailing market scenario’. He was confused about the ‘market scenario’ and its link to his money invested.

Basically the poor guy had no knowledge about the working of the insurance plan. Had the peon been aware about the product design, he would have perhaps avoided investing in the scheme. Here, financial literacy assumes significance.

To be precise, financial literacy refers to the knowledge required for managing money. For example, it encompasses an understanding of how to use loan facilities judiciously, manage money, minimize financial risks and derive long-term benefits of savings, investing and availing loans not beyond need.

Being financially literate means that you would be clear about your needs and wants. You can prevent yourself from falling into a debt hole and at the same time it will enable you to climb out of it.

As I have been advocating it in the past too, to see more and more people get financial literacy, the best thing is to catch them young. Financial education should be part of the school curriculum to make dealing with money easier, in real life.

We know schools teach their students addition and subtraction and they teach them simple and compound interest. But what they don’t teach them is how this is immediately applicable to their bank accounts, and to income and spending once they start working.

As you all know, one of the very fundamental things that we deal with from childhood is money. Kids receive money from relatives as gifts, or they are sometimes asked to do a bit of small kitchen shopping. As teens, their need for cash increases and so do the demands they make to their parents.

When they start working cash becomes king and continues to be so throughout adulthood and into old-age. So, in the backdrop of this process, why not our schools teach their students how to earn and manage this ‘money’ thing in a prudent way?

If this system of financial literacy is followed, the students coming out of this education scheme would understand the importance of every Rupee; how to earn it, grow it, account for it and manage it better irrespective of their parent’s financial education or socio-economic status. We would lay the foundation for a society where individuals can take responsible financial decisions as they move through college and life. So, we must catch them young, financially.

Meanwhile, in the pandemic-induced scenario where millions of first-time users of electronic banking services were flocked to board the digital India platform, focus on creating awareness about convenience of digital transactions, security of digital transactions and protection of customers is a welcome step.

However, the campaign merits a long term stay and should not serve as a customary thing. Banks and financial institutions have to tailor their financial literacy campaigns beyond the traditional lines. They should embark upon a media mix with emphasis on online and electronic media to achieve the desired results.

To conclude, financial literacy has assumed greater significance in the virus-driven environment. Today, a strong financial literacy campaign will lay the foundation for strong digital consumers of financial products and services in the post pandemic world. It will help the households, particularly those vulnerable and marginalized sections of the society, to have a secured and sustainable financial position. This will ultimately be a huge contribution to the economic development of the country. For people, financial literacy will help them to achieve financial goals. Achieving financial goals will translate into financial freedom.

(The views are of the author & not the institution he works for)

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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