Financial literacy…What is it?
In my introductory episode last week I outlined the need to spread financial literacy.
I also mentioned that I will be writing on banking, savings, and investments as also on
loan products. This week let me tell you about financial literacy and why is it very important
for all of us to have at least the basic idea about financial literacy.
we earn our wages, salary, profit from business or from any other source. The income we earn
is spent on consumption like food, clothes, rent and other sundry expenses. Whatever is left we
save in a bank account. Over the last ten years the number of persons having a bank account has grown
much faster and today it is estimated that 80% of our adult population has a bank account. Government
has been taking many initiatives like the introduction of no frills accounts to bring more people into the
habit of banking.No frill accounts have lesser regulations in minimum balance, withdrawals, etc thus
making it easier for lower income people to enjoy banking services/,
Pradhan Mantri Jan Dhan Yojana (PMJDY) has been introduced about eight years back which is a
national level effort by banks and the Government for financial inclusion .This will facilitate the targeted
groups to have access to financial services like savings and deposit accounts ,remittances, credit,
insurance , pension in an affordable manner. Along with these efforts several initiatives have been taken
to spread financial awareness also. Though the number of bank accounts has grown substantially the
awareness of different financial products has not kept pace with this growth in bank accounts. Having a
bank account is no doubt important but we should move further and try to know more about the different
deposit schemes, loan facilities, how to send money from one place to other. Knowing all these forms
part of financial literacy.
As we grow we feel the need for life insurance and asset insurance. We normally depend on the advice
of our friends or the insurance agents and buy a policy not suitable to our requirements. After paying the
premia for 3/or 4 years we surrender the policy or stop paying the premia thus losing both our money
and protection. We should take some initiative and refer to newspapers, magazines, etc to know about
various insurance policies and choose the suitable one.This process is financial literacy.
we often read and hear about price rise and inflation which effectively reduces our purchasing power
and eats in to our savings in banks, we have to find better avenues to place our savings to get a return
which is more than the inflation to protect our savings We have to place part of our savings in other
schemes like post office deposits, Company deposits, mutual fund schemes to earn a better income.
But all these avenues have risk associated with these investments/.We should gather information about
various schemes from news papers, attending short duration class room training etc to have sufficient
inputs which will enable us to take a better informed decision .This process again is financial literacy.
Financial literacy makes substantial impact on families as we learn to manage our family finances.
As the family grows important milestone expenses like higher education, marriages, home buying
and unexpected expenses will have to be met in a seamless manner. Having sufficient financial literacy
from the school level life will make us sufficiently confident to evaluate the options on hand and take
a well qualified decision when so required.Efforts should be made to equip children and housewives
with adequate financial awareness so that the entire family is confident when faced to take financial
We will move on to the various financial products from next week onwards.
Till then good luck.