Conducting sessions onFinancial Literacy
According to a report by the Global Financial Literacy Excellence Center, only 24% of India's adult population is financially literate, making India’s financial literacy rate the lowest among major emerging economies. This gap can be attributed to inter-state disparities, lack of formal training, and limited awareness about financial education. While other countries in similar economic conditions have made strides in improving financial literacy, India still has significant room for improvement.
So why do we need to be financially literate? Couldn’t we just hire a financial consultant to guide us through our financial decisions? While hiring a consultant is certainly an option, financial literacy is essential for personal financial health.
If we lack basic knowledge about savings, investing, budgeting, or debt management, we risk making poor financial decisions, such as overspending or over-investing.
Overspending can leave us without savings for future emergencies, while over-investing might force us into a frugal lifestyle, unable to enjoy the money we've earned. Financial literacy teaches us how to balance these extremes.
To illustrate the importance of financial literacy, consider the staggering example provided by India's Finance Minister, Nirmala Sitharaman, in a Rajya Sabha session.
As of December 2020, around ₹26,697 crore was lying unclaimed in approximately 9 crore Indian bank accounts that had not been operated for more than a decade. These are individuals who "over-saved" but were unable to utilize their money or pass it on to their future generations.
This is precisely where financial literacy comes into play. By understanding the fundamentals of managing money, individuals can make informed decisions, striking a balance between saving for the future and enjoying their earnings today. Financial literacy empowers people to take control of their financial well-being and avoid pitfalls like unclaimed assets or excessive frugality.
One of the biggest drawbacks in today’s education system is that income management is only taught to individuals who choose careers in finance or related fields. As a result, the majority of young people grow up without learning how to properly manage their earnings. This lack of knowledge leads to poor financial planning, especially in critical areas like health and life insurance—both essential components of sound financial planning.
Many people mistakenly believe that having large amounts of cash on hand is the best way to manage money. Consequently, they accumulate significant cash reserves at home,
unaware that the value of this money decreases over time due to inflation, and it doesn't contribute to the formal financial system. Unused cash sitting at home does not grow or provide any financial benefits.
As India continues to expand economically, a proper financial education will be crucial for individuals to maximize their earnings through smarter investments. Financial literacy enables people to diversify their investments beyond cash and build wealth more effectively.
The Indian government has recently made efforts to improve financial literacy at the school level by introducing policies to address the literacy gap. However, these initiatives face a major challenge: lack of effective implementation.
In schools, students are taught to solve mathematical problems but are not shown how these skills apply to real-life decision-making. Concepts like calculating the area of a square or learning the hypotenuse theorem, while useful for academic purposes, often have little to no relevance in everyday financial planning. Yet students are rarely taught practical skills like how to create a household budget.
The solution lies in shifting the focus of education to practical financial concepts. Children should be taught how to create monthly budgets, open and use savings accounts, understand Public Provident Fund (PPF) accounts, and learn how the magic of compounding works for long-term investing. These skills, taught early on, can equip students to make informed financial decisions from a young age. By integrating practical financial education into the school curriculum, we can create a generation that is better prepared to manage their money effectively and achieve financial independence.
SEVA offers financial literacy at two key levels to empower women and promote sound financial management :
1). Basic Financial Literacy: This course is compulsory for women applying for a loan for the first time. It ensures they fully understand the terms and conditions of the loan, teaches them how to keep financial records, and emphasizes the importance of savings. To make it accessible for semi-literate and non-literate women,
SEVA relies heavily on visuals and pictorial representations. This approach helps participants easily grasp financial concepts despite literacy barriers.
2. Advanced Financial Literacy : SEVA's advanced financial literacy program is designed for women seeking more in-depth knowledge of business management. It covers topics such as budgeting, debt management, financial negotiation, and marketing. This course provides women with practical tools to run their businesses effectively.
SEVA further extends its financial literacy efforts through mobile platforms, such as the Program on Wheels, which delivers financial literacy training to remote areas. Partnering with the NIIT Foundation, SEVA uses films, flip charts, and games to explain various financial products and services to women who are either entering banks for the first time or looking to manage their finances better. Over the past four years, these efforts have reached over 4,000 women, equipping them with the skills needed for financial independence.
1. Encourages Active Saving Behavior : Financial literacy helps individuals, particularly young people, to better manage their income and savings. Currently, there is a significant imbalance between consumption and savings, with many people lacking awareness about effective saving and investment strategies. A strong financial education equips individuals to manage their resources more efficiently, helping them to save and invest wisely for future needs.
2. Develops Credit Discipline : A large portion of the Indian population still relies on informal sources for loans, such as moneylenders and commission agents who often charge exorbitant interest rates. According to an RBI Working Paper, 42.9% of rural India borrows from such non-institutional sources. Financial literacy helps small businesses and individuals understand the benefits of borrowing from formal financial institutions, reducing their reliance on high-interest loans and avoiding debt traps.
3. Promotes Risk Management with Insurance : In urban areas like Mumbai and Delhi, individuals struggle with effective financial planning, especially regarding life and health insurance. While fixed asset investments are increasing,
many people fail to allocate sufficient resources for essential insurance coverage. Financial education helps individuals understand the importance of risk management, ensuring they have suitable insurance protection, which can safeguard their financial stability at various life stages.
4. Instills Financial Literacy as a Life Skill : By promoting financial education, India can empower diverse sections of the population with essential life skills. Financial literacy allows individuals to navigate financial challenges, make informed decisions, and secure their financial future.
5. Encourages Participation in Financial Markets : A well-educated population can better utilize financial markets to achieve personal financial goals. Financial literacy helps individuals set and meet their financial objectives by making informed investments and taking advantage of the resources available.
6. Improves the Use of Digital Financial Services : With the growing digitalization of financial services, it’s crucial to educate people on how to safely and effectively use these tools. Financial literacy ensures that people can leverage digital financial services while understanding security risks and safe practices.
Volunteer Campaigns
Volunteer for conducting the session on financial literacy
According to the report conducted by the Global Financial Literacy Excellence Center, only 24% of the Indian adult population is financially literate.
