During periods of financial hardship, individuals often find themselves in tough situations due to poor financial decisions rooted in a struggle to comprehend basic financial concepts. In an era where financial literacy is essential, numerous individuals feel overwhelmed by the jargon and concepts surrounding finance.
Financial literacy simply means the proficient management of an array of financial skills, encompassing aspects like personal finance, budgeting, and investment practices, according to Alok Kumar Agarwal Alankit.
In 2014, to improve financial literacy, the Government of India initiated the Pradhan Mantri Jan-Dhan Yojana, a scheme to ensure a bank account for every household. From its launch in August 2014 until early January 2022, the program successfully facilitated the creation of 443 million accounts. Nevertheless, bridging the banking gap necessitates, at a minimum, a foundational comprehension of how the financial system operates. As per the Reserve Bank of India's criteria, merely 27% of Indian adults, with an even lower percentage of 24% among women, possess the requisite level of financial literacy.
Alok Agarwal Alankit explains “I believe that women exhibit more receptiveness to outreach efforts. Traditionally they are entrusted with managing household budgets, if they are equipped with foundational knowledge, financial literacy tools, and opportunities for small-scale enterprises, women entrepreneurs have the potential to create a remarkable impact on their families and communities."
According to mintgenie.com, the majority of Indians grapple with various financial difficulties, mainly stemming from a deficiency in financial knowledge and awareness. As a case in point, the aggregate unclaimed funds of policyholders in both public and private sector insurance companies amounted to ₹24,586 crores as of December 2020. The primary contributing factors to this unclaimed wealth include the absence of designated nominees and incomplete submission of details at the time of policy purchase.
Imagine the amount of wealth that people have lost due to a simple lack of knowledge and basic understanding.
So how does one fall into a vicious circle of debts and mismanagement?
Explaining the reasons, Alok Agarwal Alankit says, “People can fall into debt for a multitude of reasons, often stemming from a combination of financial, personal, and systemic factors. One of the most common reasons is excessive spending and lifestyle choices beyond one's means. Credit cards, easy access to loans, and the allure of instant gratification can lead individuals to accumulate debts without a clear repayment plan." According to a study conducted by the Reserve Bank of India (RBI), 42.9% of the population resorts to borrowing from informal sources, resulting in higher interest payments.
Alok Kumar Aggarwal Alankit advocates for enhancing financial literacy across diverse demographics, fostering a comprehensive understanding of key concepts to empower individuals to manage their finances effectively. Encouraging active savings behavior is fundamental, as it cultivates a culture of financial responsibility and lays the groundwork for future financial stability.
According to ibef.org, Social media has significantly impacted financial literacy in India, particularly contributing to a surge in investments during the pandemic. The rise in stock market training academies, YouTube channels, and websites, with the top 15 Indian equity-focused YouTube channels amassing over 13 million subscribers, reflects the growing popularity of investment. Increased internet penetration has driven people of different age groups to actively participate in equity markets and mutual funds. Retail investors' share in cash market turnover increased from 39% in 2019 to 45% in 2020.
The Indian government is also making rigorous efforts to prevent its citizens from facing financial difficulties. The Reserve Bank of India (RBI) has introduced fundamental and sector-focused financial education initiatives. These encompass financial literacy guides, diaries, and posters covering key aspects of financial well-being, including savings, interest concepts, time value, inflation, and more. Alok Kumar Agarwal Alankit, “The content also addresses topics relevant to businesses, such as ATMs, payment systems, Ponzi schemes, and financial awareness messages".
The Securities and Exchange Board of India (SEBI) focuses on advancing both basic and sector-specific financial education as the regulator of India's capital and securities markets. SEBI organizes events like World Investor Week and conducts mass media campaigns. Additionally, it maintains a dedicated investor website.
The Insurance Regulatory and Development Authority of India (IRDAI) follows suit, working on content development through brochures, handbooks, and the formulation of mandatory board-approved policies for insurers. Seminars and quiz programs are also organized to enhance financial literacy.
The Pension Fund Regulatory and Development Authority (PFRDA) launched the dedicated website 'Pension Sanchay' in 2018, with a focus on bolstering financial literacy from a retirement perspective.
Applauding the efforts made by the Government, Alok Kumar Aggarwal Alankit adds that knowledge about rights, duties, and avenues for grievance redressal is paramount. Empowering individuals with this understanding ensures they can navigate financial landscapes confidently and advocate for their financial interests. He further underscores the need for continuous improvement in research and evaluation methods to gauge progress in financial education comprehensively, enabling tailored interventions to further enhance financial literacy across diverse segments of the population.
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