How important are money lessons

Mere opening up of a bank account or investing in shares doesn’t mean financial literacy is achieved
Representational Image
Representational Image Pxhere [Creative Commons]

Last week, the Investor Education and Protection Fund (IEPF) Authority under the aegis of Ministry of Corporate Affairs (MCA) organised an ‘Investor Education, Awareness and Protection’ conference in Srinagar. Among other activities at the event, it was the technical session where experts deliberated upon the given topic: “Financial literacy a tool of economic empowerment”.

Investor Education and Protection Fund Authority, established by the Government of India on September 7, 2016, is mandated to promote investor education, awareness and protection.

It is also mandated to make refunds of shares, unclaimed dividends, matured deposits/debentures etc. that have been transferred to the Fund after the amounts have remained unpaid or unclaimed for a period of seven years.

For instance, if an unclaimed dividend, matured deposits with companies other than banking companies along with accrued interest, unpaid or unclaimed application money received by companies for the allotment of shares and due for refund etc. are lying as unpaid for seven years, the amounts will be transferred by the respective companies to the IEPF. The amount parked in the fund is utilized for promotion of investors’ education, awareness and protection.

However, any person or shareholder whose unpaid or unclaimed amount has been transferred by the company to the IEPF can claim refunds from the IEPF Authority. Notably, according to the Fund authority, more than 28,000 claim refunds have been approved with transfer of about 1.6 crore shares and related dividends.

In the given scenario, particularly in the aftermath of the Covid-19 pandemic, awareness among investors about the financial markets and the basket of financial products available to them is a key to their wealth creation. Pertinently, these financial markets provide fuel to the engine of economic development of a country to achieve sustainable economic growth.

The financial markets in the country have been witnessing a boom. Even as the markets are strengthening in terms of maturity and modernisation, the fast global integration of the markets through innovative technology backed products are adding complexity to the markets.

Since millions of raw investors during the last couple of years of the virus-induced pandemic have boarded the equity market platform, it becomes imperative for the organization like IEPF Authority to pursue investor education programmes at large scale to support financial investor protection, enabling investors to identify risk factors and help them to appropriately tailor investment plans as per their risk bearing capacity.

Let me quote findings of a survey mentioned in the latest ASSOCHAM document. According to the survey carried out for the period 2017 to 2020, there has been a steady increase in the number of young investors (18 to 35 years) in mutual funds, from 66 per cent in 2017 to 70 per cent in 2020.

Similar trends were observed for female investors, whose count rose from 9 to 19 per cent in the same period. The highest equity allocation among states came from regions like Jammu & Kashmir and Bihar; regular leaders like Gujarat and Maharashtra did not rank at the top.

Meanwhile, according to SEBI, 1.3 crore investor accounts, or 70.01 per cent of all individual investors, and 28.54 per cent of the mutual fund industry’s total assets under management (AUM), belong to people with incomes of up to Rs. 5 lakh. 1.65 crore investor accounts (89.29 per cent) and 47.2% of the industry AUM were held by people making up to Rs 10 lakh.

A brief about unclaimed bank deposit accounts merits mention. Even as there is a set procedure to trace owners of the unclaimed deposit accounts, the list of such accounts continues to swell. These accounts are handled through a scheme introduced by RBI in 2014- Depositor Education and Awareness Fund (DEAF) Scheme.

Under the scheme money lying in the account that has not been operated for 10 years or any deposit or any amount remaining unclaimed for more than 10 years has to be transferred to the fund within three months from the expiry of the said period of 10 years.

The amount lying in the fund is used for the promotion of depositors’ interest and other purposes as specified by the RBI. However, depositors are entitled to claim their deposit, or any other unclaimed amount, from the bank or operate the account after 10 years, even if the amount has been transferred to the Fund.

As far as financial literacy is concerned, the scenario has not been healthy. Despite large scale financial inclusion drives across the country, especially through the globally popular Jan Dhan Yojana, the rate of financial literacy and education has been low. Of course, such drives have witnessed millions of new bank accounts, but opening a savings bank account doesn’t mean that the accountholder is literate in terms of financial matters.

The scenario is a big challenge for financial institutions, regulators and other industry stakeholders to handhold the investors, particularly those millions of first-time investors in the financial markets, through innovative financial literacy initiatives.

To be precise, financial literacy is simply the knowledge required for managing money. In other words, it encompasses an understanding of how to use loan facilities judiciously, manage money, minimise financial risks and derive long-term benefits of savings, investing and availing loans not beyond need.

There are certain things which need to be taken into account while tailoring a financial literacy campaign, be it for stock market investors or bank account holders. Let me reproduce my earlier suggestions in this regard. The best thing is to apply the “catch them young” policy. 

Financial education should be part of the school curriculum to make dealing with money in real life easier. 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.

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.

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.

An effective and consistent financial literacy campaign 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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