Worldwide, just 1-in-3 adults show an understanding of basic financial concepts and exhibit money management skill sets.

This was a finding as per the global financial literacy by Standard and Poor’s rating services conducted in 2014. More than 15,000 nationally representative and randomly selected adults in more than 140 economies were interviewed in the above mentioned survey.  The following were other interesting points as per the same survey. 

HARD HITTING FACTS

• Financial literacy challenges confront developing economies and advanced economies alike.
• When only half of the credit card owners can perform simple calculations related to interest in China, just 57% of credit card owners correctly answer the interest questions in the United States.

Governments are pushing to increase financial inclusion by boosting access to bank accounts and other financial services, but unless people have the necessary financial skills, these opportunities can easily lead to high debt, mortgage defaults, or insolvency. This is especially true for women, the poor, and the less educated—all of whom suffer from low financial literacy and is the segment that government programs targets to achieve its financial inclusion vision.

As per Financial Literacy Advisory Body India (FLAB India) financial literacy (FL) is the ability to understand how money works: how someone makes, manages and invests it. 

Financial literacy is having the knowledge, skills and confidence to make responsible financial decisions. The objective of FL is to empower people to take actions that are in their own self-interest. Researchers have found that financially savvy adults are, in general, less likely to default on loans and more likely to save for retirement (Lusardi and Mitchell, 2014).

Reserve bank of India was celebrating the Financial Literacy week this year from 4th June to 8th June 2018 in India. What a great opportunity to connect with masses who have so many queries in Money Management. But, how many of us were a part of this celebration?.

The event could have been be done in a more vibrant and creative way instead of doing it as a ritual. Be it an educational loan or tax investment or adequate medical insurance cover or buying the of units of Mutual funds or Retirement planning, there is a need for Financial Literacy. Though the level of knowledge may be different from case to case.  Generally, we can gain the knowledge on the financial products by reading the facts, terms and conditions mentioned in the offer documents. We conveniently avoid that.

It may be due to the fact that we are not comfortable with the technical terms mentioned in the documents. Hence it so happens that we go by the seller’s perceptive and depend on their knowledge. Thanks to aggressive selling style of financial products in India. It is so convenient to just sign on the application form without reading the details mentioned in the form. The more we avoid reading and understanding the facts the more we depend on the sellers  and their advice  on selecting any product. We remain illiterate.

It is a myth that if you are not good in Maths then it is difficult for you to understand Money Matters. Some of us avoid to understand the Money matters as much as possible. It is being perceived as complex. Some of us don’t even do a simple act of converting the idle money in saving account for Fixed Deposit for a short period to get some interest.

There are cases of unclaimed dividends with Companies when dividend cheques  are not deposited and unclaimed deposits with Banks due to the fact that deposits not having nominee details. Some of us constantly pay the late fees/charges for making payment after the due date. More than laziness, it all relates to lack of having a habit of Managing Money. It may be earning or investing or spending or donating.  We need to develop a smarter money management attitude. It is developing a habit of learning about money with the curiosity and the management of money with discipline.

As a famous quote says “When the student is ready, the teacher will appear”, it is the individual curiosity and interest, which will make learning happen. Then comes the discipline of planning for the future, tracking the details and following the rules made by oneself. We have witnessed   some Indian success stories in the micro finance sector, in both micro lending and micro saving. It is basically a smart money management, attitude in those cases gave them the financial empowerment.

There are some Jargon’s like Financial Literacy, Personal Finance and Financial Planning which all deal with the same topic of Money Management of Individuals.  Financial Literacy has to be reached and not to be just preached. There are few creative pieces of work on financial literacy promoted by financial institutions available free for us. To quote an example, there is a video on YouTube titled one idiot by IDFC foundation explains the need to be smart in money management to create and enjoy wealth. There is a need for more such interesting works which will make the masses to get connected with the topic.

To reach Financial Literacy to the masses, we also need to simplify the information. An example of such simplified information kit can be taken from the regulations of the Monetary Authority of Singapore (MAS). Since individual investors cannot easily digest all detailed financial information, It has introduced a new regulatory requirement, it is a Product Highlights Sheet. It should accompany along with investment products offer documents. Its purpose is to convey key risks and product information in plain language and in a simple question-and-answer format. Every offer document can also include an explanation of basic financial terms like Compound interest,Dividend,Risk in the most simplified way. This will enable the investors who are not from the finance background also to understand the financial product well. We can avoid financial jargon’s as much as possible. First of all, why don’t we call it simply as Money Management skills instead of Financial Literacy? The name financial literacy itself may not be appealing to some people who are highly educated, but still need to learn Money management skills.

Let us incorporate the design thinking concept while developing the training and learning materials. Let the training and information materials be simplified and with better UX – user experience. Let the learners be curious and disciplined.

Behavioral transformation from the learners’ side  and structural transformation from the Training side will make the Money management Skill simple and possible.

Financially yours,

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