National Strategy for Financial Education

The first decade of the 21st century has seen a universal recognition for  spreading financial literacy among people.   Most of the countries  are adopting a unified and coordinated national strategy for financial education.  Given the fact that India is having large population, a fast growing economy with national focus on inclusive growth and an urgent need to develop a vibrant and stable financial system, it has become all  the more necessary to quickly formulate and  implement a national strategy.

Also since a large number of stakeholders including the central and state governments, financial regulators, financial  institutions, civil society, educationists and others are involved in spreading financial literacy; a broad national strategy is a prerequisite to ensure that they  work in tandem according to the strategy and not at cross purposes.

The National Strategy, thus, seeks to create a financially aware and empowered India. It aims at undertaking a massive Financial Education campaign to help people manage money more effectively to achieve financial well being by accessing appropriate financial products and services through regulated entities 

What is Financial Literacy?

Organization for Economic Cooperation & Development  defines Financial Literacy as  a combination of financial awareness, knowledge, skills, attitude and behaviour necessary  to make sound financial decisions and ultimately achieve individual financial well being. People achieve financial literacy through a process of financial education.

Financial Inclusion : A Top Policy Priority of Government

Government of India has recognized the importance of spreading financial literacy to intensify efforts to channelize domestic savings to investments. However,  increasing range and complexity of products has  made it very difficult for an ordinary person to take an informed decision. Financial literacy develops confidence, knowledge and skills to manage financial products and services enabling them to have more control of their present and future circumstances. Financial literacy will also help in protecting society and individuals against exploitative financial schemes and  exorbitant interest rate charged by moneylenders. 

It is expected that financial education can lead to multiplier effects in the economy. A well educated household would resort to regular savings, which in turn would lead to investment in right channels and income generation. Thus, the financial well  being of individuals, will in turn increase the welfare of the society.

International Experience and the Lessons for India

Globally, Countries like Czech Republic, Netherlands, New Zealand, Spain, and UK have already implemented National Strategy for Financial Education, while many other countries are in the process of formulation and implementation. 

In India, we need a tiered approach under National  strategy in view of our diversity.  The draft National Strategy has been prepared with the objectives  of i) Creating awareness and educating consumers on access to financial services, various types of products and their features, ii)changing attitudes to translate knowledge into behavior and  iii) Making consumers understand their rights and responsibilities as clients of  financial services.

Given the fast pace of changes in the financial  world, it has been envisaged to have a five year timeframe for implementing the strategy, using Strategic Action Plans.

Sample Survey to Assess the State of Financial Literacy and Inclusion

The Strategy provides for conduct of a nation wide sample survey for assessing the state of financial inclusion and financial literacy. The survey, inter-alia will assess the level of financial inclusion, level of financial awareness about various financial products, level of financial competency to make informed decisions, people’s attitude towards money as well as their attitude towards risk taking.

Based on the assessment of the survey, various financial regulators would develop their financial education modules to address the needs of their clients. It would then be delivered through school curriculum, social marketing, advertising through radio, television, print and outdoor and by setting up dedicated financial education websites. There is also a proposal to rope in Self-Help Groups, Micro-Finance Institutions, investors and consumer associations etc.

Financial Education in School Curriculum

Governments have recognized that financial education should start at school and that people should be educated about financial matters as early as possible in their lives. Organization for Economic Cooperation & Development has developed Guidelines to assist policymakers and interested stakeholders in designing, introducing and developing efficient financial  education programmes in schools.

However, it needs to clearly be specified that the financial education would not be another subject  taught in the schools. What is needed is its  appropriate integration in the school curriculum. For example, compound interest is taught in Arithmetic as an abstract concept of, A lending to B at some interest rate compounded annually. This can be turned into an opportunity of financial education by weaving into a problem of a company that borrows from a bank or a bank customer who opens a Cumulative Deposit Account instead of a simple Fixed Deposit Account. Similarly, moral science courses could have content which are based on day to day financial transactions

CBSE has agreed, in principle, to introduce it in an integral manner in school education at the post primary level and to facilitate the process, a committee of experts has been constituted.

Synergizing the Efforts of Regulators in Spreading Financial Literacy.

In India, various financial regulators including Reserve Bank of India, Securities Exchange Board of India, Insurance Regulatory & Development Authority etc have already embarked upon massive financial literacy programmes adopting multi-pronged approach.

Reserve Bank of India has undertaken a project titled ‘Project Financial Literacy’ to disseminate information regarding the central bank and general banking concepts to various target groups, including school and college students, women, rural and urban poor, defense personnel and senior citizens.

Securities Exchange Board of India has empanelled Resource Persons throughout India who organize workshops to target segments on various aspects viz. savings, investment, financial planning, banking, insurance, retirement planning etc. More than 3500 workshops have been already conducted in various states covering nearly 3 lakh participants.

Insurance Regulatory & Development Authority has been disseminating simple messages about the rights and duties of policyholders, channels available for dispute redressal etc through radio, TV and print media in English, Hindi and 11 other Indian languages.

The Pension Fund Regulatory and Development Authority(PFRDA) has been engaged in spreading social security messages to the public.  PFRDA has developed FAQ on pension related topics on its website, and has been associated with various non government organizations in India in taking the pension services to the disadvantaged community.

Similarly, commercial banks, Stock Exchanges, Broking Houses and Mutual Funds have the initiatives in the field of financial education that spawns conducting of seminars, issuance of do’s and don’ts, and newspaper campaigns.

It will be necessary to collate and classify the vast amount of material developed by these institutions, that can serve as the knowledge base for financial education in India.

Institutional arrangements envisage creation of the National Institute of Financial Education(NIFE), with representatives of various regulators as members.  The main role of NIFE shall be to create financial education material for respective financial sectors. NIFE shall also create and maintain a website exclusively for financial education.

The entire policy is sought to be implemented through existing institutional mechanism.  The Technical Group of Sub-Committee of Financial Stability & Development Council on Financial Inclusion and  Financial Literacy shall be made responsible for periodic monitoring and implementation of the strategy.