Nihal PS In the past, Indian bookstores stocked only financial books on their shelves. Internet penetration and the availability of affordable data have changed the game considerably in the last few years, leading a whole new group of consumers to participate in the digital economy. Within the last two years, retail participation in the Indian stock market has skyrocketed.
So let us know what is financial education and what do us need for it? What effect can this have on us and the economy? What are its challenges and what is its solution?
Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc.
A person who has financial literacy is knowledgeable and skilled enough to make informed decisions manage resources and income for judicious consumption and saving. To put it simply, financial literacy allows a person to devise a realistic and feasible financial plan based on his resources and income.
The Organization for Economic Cooperation and Development (OECD) defines financial literacy as “A combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.”
Economically emerging or developing economies and advanced economies are both affected by a lack of financial literacy. The majority of consumers around the world do not understand the basics of financial management, from Brazil to Bulgaria to India.
In the last two years, retail participation in the Indian stock market has increased dramatically.
During April to November 2021, Central Depository CDSL1256.2526.70 (2.17%) NSE 2.17 % Services (CDSL) and National Securities Depository (NSDL) added 28.6 million new accounts.
Approximately 75 percent of Indian adults do not adequately understand the fundamentals of finance, according to a survey by S&P. It is even worse for women, with 80% of the gap being attributed to them.
The financial literacy gap in India continues to be a challenge, but there are a number of steps India can take to bridge it.
A simple measure of financial literacy
Importance of Financial education
The level of financial literacy in developed countries is low and contributes to growing wealth inequality. Benefits from increasing the level of financial literacy include more effective saving for retirement and better debt management.
Robert Kiyosaki, author of Rich Dad Poor Dad book, says that along with academic education, financial education is also very important. Both are important but are left out in school. People should talk about money. Parents should teach their child how to manage money. It is very important to learn how to manage debt – like how to save, invest etc.
Author Morgan Housel of The Psychology of Money Book says that ‘It’s more difficult to be rich than to be rich’ if you don’t know money management.
Here are three points that show why financial education matters.
1: Decreasing purchasing power of money: Purchasing power refers to how much you can buy with your money. As prices rise, your money can buy less. As prices drop, your money can buy more. One way to think about purchasing power is to imagine that you made the same salary that your grandfather made 40 years ago. Today, you would need a much greater salary to maintain the same quality of living.
Inflation is the gradual rise in the prices of a broad range of products and services. If inflation persists at a high level or gets out-of-control, it can eat away your purchasing power—what you can buy with the money you have.
To beat the inflation rate: Long-time investors know that loss of purchasing power can greatly impact their investments. Rising inflation affects purchasing power by decreasing the number of goods or services you can purchase with your money.
Investors must look for ways to make a return higher than the current rate of inflation. More advanced investors may track international economies for the potential effect on their long-term investments.
To get higher returns than bank FDs: Several constraints prevent rural residents from accumulating assets with their savings. Investment opportunities are limited for rural investors due to lack of financial literacy.
The vast majority of rural savings are invested in informal savings avenues like gold, chit funds, real estate, and bank deposits.
It is possible to improve the efficiency of such savings by institutionalizing them so that they can be allocated more effectively among different areas, sectors, and economic activities. An essential component of this is financial literacy and education.
Motivation
Financial literacy is important for those interested in labor markets for at least three reasons. First, workers who lack basic financial literacy skills may be more likely to be financially distressed, with potential consequences for absenteeism and productivity.
Second, they may have to work longer to reach the same level of retirement income because they failed to save for retirement or saved inefficiently via low-return products.
Third, financially literate workers are more likely to understand a firm’s financial situation, especially during economically challenging times, which may lead to better collective bargaining outcomes for all involved parties.
Way Forward
To promote financial literacy in India, individuals should be provided with relevant skills and knowledge at various levels. They should be able to put their skills and knowledge into practice through their competence and self-efficacy. Basic financial education must include –
- A strong understanding of financial planning,
- Knowledge of basic financial products usage
- Effective money management,
- Debt management,
- Prioritizing needs,
- Understanding effective investment tools like SIP,
- Understanding EMI terms,
Solution
In today’s world, financial literacy should be considered as important as basic literacy, i.e., the ability to read and write. Without it, individuals and societies cannot reach their full potential.
Here Stockpro plays an important role. This is what which makes us happy & proud when course member are able to book profits
We at StockPro have a dream to make financial literacy a stepping stone towards materializing financial freedom across the country. Come join us and let’s learn and grow together to become highest tax payers of the country and let’s be part of the India shining Campaign.
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