Importance of Financial Literacy in India

Financial literacy refers to the skills and knowledge of finance that can be used to make informed decisions, while managing resources & income for judicious consumption & saving. Simply put, financial literacy allows a person to make a robust and viable financial plan, in keeping with his resources & income, to meet his present and future needs.

The Organization for Economic Cooperation and Development (OECD) defines financial literacy as "A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing."

It is alarming that financial literacy in India lags behind that of many countries. According to a global survey, India accommodates around 20% of the total world population, yet only about 24% of the Indian population is aware of basic financial concepts! Governments since independence have made efforts to promote financial literacy as it is directly related to financial inclusion, which, in turn, plays a major role in fostering economic growth of the country.

Need for Financial Literacy in India

The need for financial literacy to incorporate financial inclusion is now widely recognized by all stakeholders, including the policymakers, practitioners, bankers, researchers, and academicians across the globe.

In consonance with the OCED’s global paradigm, the National Strategy for Financial Education aims at:

  1. Spreading awareness about basic financial products, such as bank accounts, in order to link new users to the financial sector.
  2. Educating the existing users in the financial sector to make informed decisions.
  3. Ensuring customer protection from risks and frauds by making them vigilant.

Way Forward for Financial Literacy in India

In order to promote financial literacy in India, individuals should be imparted with relevant skills and knowledge at various levels, but mainly in school and college. They should be enabled to put their skills and knowledge into practice through their ability and self-efficacy. The basic financial education at the intermediate and college level must include:

  1. A robust understanding of financial planning
  2. Knowledge of usage of basic financial products
  3. Effective money management
  4. Debt management
  5. Prioritizing needs over wants
  6. Understanding effective investment instruments, like SIP
  7. Understanding terms of EMI

The government must take into consideration that mere access to financial services does not ensure promoting financial literacy. It is the knowledge of financial products, and its regular application that will bring about the desired change.

This topic can be asked for essay writing in the English Writing Skills paper of RBI Grade-B Main. Your views on financial literacy, and what should be the way forward, may also be asked in the RBI Grade-B interview which makes it an important topic for preparation.

Should you need further assistance on any aspect of your preparation, you can enroll in our detailed RBI Grade-B Exam Online Course. Get in touch with our course counselors to get more information about the course deliverables.