Why Financial Literacy is important?

According to various surveys including OECD Surveys, only 27 per cent of India’s population is financially literate. Additionally, only 16.7 per cent of Indian students have a basic understanding of finance and money management. The level of financial literacy varies by state, with Arunachal Pradesh having the highest rate at 57.1% and Puducherry having the lowest at 5.7%. It is also noticed that the financial literacy rate is lower in Indian adults than in other developed nations including USA, UK, and Singapore.

What is financial literacy?

Financial literacy is the ability to understand and make effective use of financial concepts and skills in day-to-day living. Financial management, credit management, investing, and budgeting are all fundamental skills that everyone should possess. In other words, financial literacy understands how we can manage our money.

Financial literacy for a common man in India is the ability to understand and use financial skills, such as budgeting, investing, and personal financial management. For example, to a common man financial literacy helps in financial planning such as assessment of the current financial position of a person; for that he must be in a position to identify the financial needs in the next year, or for 1 to5 years or long terms, estimating the cost of each item and date we want to achieve it. For that, he may need a financial diary for maintaining weekly/monthly and yearly expenses. If he is having limited income which is not sufficient to reach the target, he has to curb the expenses that are not essential. If his income is more than the estimated expenses he must save the money in a bank or post office. It’s important because it can help people build wealth and have a smart relationship with money.

The Reserve Bank of India (RBI) has been promoting financial literacy in India since 2016 through Financial Literacy Week (FLW) and other initiatives:

The RBI has observed FLW every year to educate the public on financial topics and encourage responsible financial behaviour. The 2024 FLW theme was “Make a Right Start: Become Financially Smart” and focused on topics like saving, banking for students, and digital and cyber hygiene.

The RBI has also collaborated with banks to set up block-level centers that provide financial guidance to local communities. The RBI has also established museums to educate the public about the history of money and banking in India. The RBI also works with institutions like the National Council of Educational Research and Training (NCERT) to integrate financial literacy into school and university curriculums. The RBI also has a public awareness campaign called “RBI Kehta Hai” that uses various media channels to share information about banking, finance, and consumer rights.

School Curriculum

Incorporating financial literacy into the school curriculum can help children learn basic financial concepts at a young age. The National Finance Olympiad is an initiative to make students familiar with the art of managing money. It is expected that the students inculcate the habit of analysing finance in their daily lives, strive for savings, and invest in resources to amplify their worth for future accomplishments. Side by side with national-level competition and including financial literacy in the school curriculum, the National Finance Olympiad intends to bridge the prevalent gap in financial education and offer top-level competition. Schools play a role in introducing new concepts and making students part of financial literacy campaigns. NFO renders an excellent opportunity for students to gain practical financial insights and establish positive money habits while competing with peers from across the nation. The National Finance Olympiad attempts to make India Financially inclusive through national-level competition among students.

Workshops and seminars:

Organizing workshops, seminars, and awareness campaigns for different demographics can help spread financial education.

Digital platforms

Using digital platforms and mobile apps to share financial education can also be effective.

Consumer education

Educating consumers about their rights and responsibilities when it comes to financial products and services can also help improve financial literacy.

Conclusion:

With financial literacy, citizens can make informed financial decisions that benefit themselves and their communities. It can also help to reduce poverty and inequality, as people can make informed decisions about investments, savings, and borrowing. This, in turn, can lead to a more sustainable and prosperous economy.

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