When talking about overall financial literacy in India, we are only 27 percent in such a huge population. Majority of Indians have to face many financial difficulties due to a lack of financial knowledge and awareness.
For instance, the total amount of unclaimed amounts of policyholders in public and private sector insurance companies was at ₹24,586 crore at the end of December 2020. The primary reason for this unclaimed money is a lack of nominees, non-submission of full details when you bought the policy, etc.
It is important for your child not to make these kinds of mistakes and live a financially stable and sound life as well. Before making your child financially literate, let’s understand why the condition of financial literacy is worse in comparison to other countries like the United Kingdom (67 percent), Singapore (59 percent), and the US (57 percent).
Finance is the least talked subject in India households
We talk more about how to earn money, but we never talk about how to manage it. We never realise the importance of saving for emergency funds, investment in early age, retirement planning, etc. That leads us in making financial wrong decisions in our life when we finally start to earn.
For instance, from the first salary, it is important to start an investment rather than buying an iPhone. Buying an iPhone is necessary only when you are earning money. It becomes a liability when you just have to bear maintaining expenses.
We are not tend to buy assets
For maintaining our social status, we buy liabilities instead of assets. There are two aspects of seeing things differently. For instance, when you buy a car, you can either use it whenever you need and when you don’t need it, your car will be parked in the house taking up a significant space while depreciating.
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Secondly, you can use your car by renting it to other people who need it for that time being whenever you do not use it, which will help you in recovering your maintenance expenses and create passive income for you.
But, in India, we usually prefer to opt out of the former rather than latter one as it seems to fit in our society. But, when we change our living patterns, others will change too. You could become the first one to change.
Misconceptions about investing
There are various misconceptions regarding investment that we strongly believe like it is a gambling, it requires huge investment and deep knowledge, investing means only stock markets, and the list can go on. These investment myths are an outcome of financial illiteracy acting as a hinder to your financial stability.
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These are the major reasons why India has one of the lowest financial literacy rates in the world, which could be reduced if we start working on these things today. We can start talking about money with our children, try to bust the myths about investing we had in our minds, and finally start buying assets with our money, rather than buying liabilities.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com