The development of soft skills, physical education, health and vocational training are receiving attention from educational boards and ministries in recent decades. However, financial education has been overlooked in our attempts to provide a more holistic and global education.
We’ve all experienced the consequences of lack of financial education at some point– made a regrettable investment, overwhelmed or stressed while filing taxes, or relied on friends and family in trying times.
Limited financial literacy is often felt more strongly in disadvantaged communities, exacerbating social inequality. However, its impact on the privileged classes is sizable. In India, only 27% of the population is financially literate, meaning only one out of every five Indians is equipped to deal with one of the most crucial aspects of human well-being.
This problem doesn’t affect only the marginalised or economically impoverished in society. It is a challenge for the middle and upper middle class as well.
For the economically backward, however, the lack of financial literacy contributes to social inequality.
Individuals may need a basic understanding of financial concepts to access and effectively use financial services.
For instance, individuals with low financial literacy may need help to open bank accounts, apply for loans, or understand the terms and conditions of financial products. They often need to be made aware of beneficial government schemes such as Pradhan Mantri Jan Dhan Yojana (PMJDY) or the Stand Up India Scheme and lose out on government aid for their betterment.
Financially uneducated individuals are more vulnerable to falling into debt traps, making poor investment choices, and becoming victims of scams and predatory financial practices. As a result, they struggle to accumulate wealth, build assets, and improve their financial well-being. This perpetuates income inequality and hampers economic growth.
Promoting financial literacy is essential to empower individuals, reduce financial vulnerabilities, and foster economic growth.
Individuals accumulate credit card debt, loans, and unpaid bills due to mismanagement, causing financial hardships and distress. Insufficient financial literacy hampers retirement planning, leaving individuals vulnerable without funds. The absence of financial literacy makes it challenging to save for emergencies, increasing financial hardships during unexpected events. Promoting financial education empowers workers to make informed decisions, reduce debt, and secure their financial future.
The impact of financial illiteracy isn’t limited to the individual level but also extends to the macroeconomic level. It can lead to lower economic savings and investment rates, hindering capital formation and limiting resources for productive activities. Additionally, inadequate financial literacy may contribute to suboptimal financial market participation, reducing the efficiency and effectiveness of financial intermediation.
Moreover, a lack of financial literacy inhibits entrepreneurship and limits individuals’ ability to start and manage businesses successfully.
A lack of understanding of financial planning and risk management makes it difficult for aspiring entrepreneurs to secure funding, make strategic financial decisions, and grow their enterprises. This hampers job creation, innovation, and overall economic productivity.
Individuals with limited financial literacy need help participating effectively in the formal financial system, impeding their access to financial products and services. In addition, lack of access to proper channels limits their ability to utilise resources for their financial needs, constraining economic activity.
Inadequate financial literacy also leads to unwise investment decisions, increasing the risk of falling victim to scams or missing out on growth opportunities. This inefficiency in allocating capital slows economic development.
Additionally, low financial literacy contributes to a lack of savings and underinvestment, reducing available money for practical use. Furthermore, individuals that lack financial knowledge may mismanage debt, leading to cycles of debt and impacting personal financial well-being. This has broader implications for financial system stability and economic growth. Promoting financial literacy is essential to empower individuals, enhance their financial capabilities, and drive a stronger and more resilient economy.
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However, all is not lost as starting a personal finance journey is more convenient and accessible today than ever before. The abundance of tools, resources, and applications available on smartphones enables individuals to begin their financial education at their own pace and in a manner that suits their specific needs. These user-friendly applications offer expense tracking, goal setting, investment analysis, and educational content that can be accessed anytime, anywhere.
The success of financial influencers on social media has emerged as a testament to the effectiveness of smartphone-based financial education. These individuals leverage social media platforms to engage with and educate the younger generation on topics such as investments and savings. Their simplified approach and relatable content resonate with the audience, making financial education more accessible and engaging.
But content platforms need more vetting regarding the reliability and accuracy of the content shared. They can just as quickly be misguided. Apart from this, while influencers play a crucial role in reaching a specific demographic, there still needs to be more resources that cater to a broader audience.
The current landscape of smartphone-based financial education primarily focuses on individual influencers and their content. While these influencers provide valuable insights and guidance, their reach is limited, and their expertise may not cover the diverse financial needs of a larger audience.
To bridge this gap, developing comprehensive financial suites or applications is essential. These suites would encompass various topics, including budgeting, investing, debt management, and retirement planning, providing a holistic and tailored approach to financial education. Partnerships with non-profits and think tanks will allow vast-scale dissemination of curated content to beneficiaries across different strata of society.
India is a growing economy. It is recognised worldwide due to its young population and brings so much to the table regarding workforce, trade and investment opportunities, and a budding consumer market. But to compete with the economic superpowers and all other global players, we must invest in the overall development of the population, especially in terms of financial education, so that we can shine on a worldwide scale and prosper to create and distribute wealth equally amongst the working population.
Pushkina Nautiyal is the CMO at Refyne,
Edited by Affirunisa Kankudti
