Social media platforms are galore with Teacher’s Day messages. Many people have enthusiastically shared some of their best experiences with their teachers while others have gone a step ahead to highlight the benefit of education.
While the web is flooded with messages and proverbs, the adage “Teaching kids to count is fine, but teaching them what counts is best” stands the test of time. How many of us have realized how the learning of mere calculations does not matter unless we know how to interpret numbers in deciding our finances?
India lags behind in financial literacy
A recent study by the Reserve Bank of India (RBI) reveals how only 27 per cent of the population in India may be inclined to understand key financial concepts, participate in daily money management and plan for retirement early in life. Now compare this to the financial literacy rate in other countries shared by Streak, a teenage-focussed Neobank in its report titled “Teenage Financial Literacy Report-2021”. The report highlights how financial literacy is high in the United Kingdom (67 per cent), Singapore (59 per cent) and the US (57 per cent).
Financial literacy levels are in a pathetic state in the country, thus, highlighting the gap in our education during schooling. The numbers are all the more appalling as India strives to achieve a 100 per cent literacy rate while lagging behind most other countries when it comes to financial literacy.
Teaching finance to people
The visibly wide gap in financial literacy prompted government regulators including the Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI) as well as the Pension Fund Regulatory and Development Authority (PFRDA) along with RBI to launch financial literacy initiatives through different channels. These regulators worked together to set up the National Centre for Financial Education (NCFE) which teaches India financial basics including savings and investments, the importance of the “time” component in investing, the power of compounding and the need to diversify your investments.
Explaining why not too many Indians are financially literate, Dev Ashish, Founder, Stable Investor says, “While Indians have been traditional savers, we still have a large proportion of our population which is far from proper financial literacy. One reason is that there is no proper curriculum embedded in the education system that can help increase this factor. People learn from their family, friends etc., who themselves aren’t so knowledgeable in this field. A majority prefer to keep money in illiquid physical instruments (like gold, and real estate) or instruments suitable for the short-term (like bank FDs, etc.). Traditional insurance also has a lot of demand but most don’t understand that insurance isn’t an investment. These insurance products neither provide good coverage nor decent returns. The need for investing in long-term products like equity gets sidelined as there is a lack of financial literacy and knowledge about these products.”
Muthukrishnan, Chennai-based Certified Financial Planner says, “I've been lucky enough to have a huge following on Twitter. I use that repeatedly to create awareness of the perils of debt, the power of compounding, the importance of savings, patience in investing and so on. What I cover through my tweets are very basic but critical aspects of personal finance and investing. From the responses I get, I understand these messages make a significant impact on the lives of many people. This is my way of a small contribution to create awareness on essential topics in personal finance.”
Financial awareness as a life skill
Can we expect our children to handle their finances when we do not even teach them how to handle money? The world is becoming increasingly complex. What will make them stand out among the crowd is their ability to take charge of their financial future. Everything in life is transient, which means that the resources at our disposal today may escape our reach tomorrow or in the distant future. This fact of life should be enough for all the need to plan our retirement early in life.
Apart, the present day needs prompt each one of us to practice financial literacy as a core life skill. This includes learning about various investment products, discerning between them while planning our finances and then parking funds in them depending on priorities and risk appetite.
Suresh Sadagopan, Founder, Ladder7 Financial Advisories says, “Financial awareness is a vital need as we need to have a working knowledge of money & investments. Only then we will be able to manage our finances and achieve our goals and financial independence which is why we work in the first place.”
The RBI recently launched the “financial literacy week” in February 2022 to promote digital transactions. The idea behind the programme was to disseminate necessary information on financial education among the public across the country. In the event “Go Digital Go Secure” held in Delhi, the central bank shared in its statement its focus on informing people about the convenience of digital transactions, their level of security and how their use help protect customers’ interests.
Educating young minds about finance
People relying on fixed deposits, fixed-income plans, physical gold and real estate alone underscore the weak grasp they have over financial products delivering high returns. However, the increasing participation in the stock markets and mutual funds underlines the increasing interest by people to park their money in instruments that deliver returns beyond inflation.
Early education in finance entails teaching young minds about what finance essentially is. The realm of finance is huge and expertise in it comes from daily practice and experience only. However, there is a need to start from the basics.
Pratibha Girish, Founder, Finwise Personal Finance Solutions puts forward the idea to begin from scratch. Girish says, “Personal Finance is a very integral part of our lives. Come to think of it, it's as basic as “Roti, kapda, makaan”. It's that important life skill. Strangely though it finds no place in our school curriculum. As a society also, we do not discuss money matters with family and children.
This means the education process on this aspect starts much later in life than it should and so leads to a lot of mistakes and misconceptions which cost time and effort to rectify. Including the basics of personal finance can go a long way in ensuring stressed free confident and financially wise individuals in society. It is the need of the day.”
Choosing a career in finance
Many people misconstrue learning finance as pursuing arduous courses in Chartered Accountancy or Company Secretary or Cost Accountancy. However, learning in finance is different. It is more about learning numerous ways of handling money, deciding the savings component, decoding the best investments from those available, and choosing the right insurance plan to stay protected while planning for both our short-term and long-term financial goals.
Of course, these goals are not absolute. They change with changing life plans and may include saving enough money for marriage, childbirth, children’s higher education, sudden medical expenses and more depending on the extent of responsibilities and income source in the family. Long-term financial goals must always include planning for retirement in a way that you have enough to pay for your expenses even in the absence of regular income. If you have loans or liabilities that have been lingering for a long period, take a life insurance plan too to avoid passing on the burden of your loan to your loved ones.
Financial literacy is a must. We must accord it the same respect as we do to most other subjects that we study. The modern world exhorts us to be financially literate. After all, what better thing can it be to be able to handle our finances sans any external interference?