WRITTEN BY- PRACHI MITTAL
(EDITED BY- ANANYA JULKA)
How many times have you struggled
with finances? How many times did you spend month end on peanuts? How many
times have you wondered what is the difference between ‘rich them and poor
you’?
The answer is financial literacy. If you know little about money, you aren't alone! Lets first look at some statistics from various surveys conducted in India to understand this.
Some Facts on
Financial literacy in India-
- 76% Indian adults lack basic financial literacy and they don’t understand the most basic and key financial concepts.
- Only 14% Indian adults could answer questions on risk diversification while 51% understood compound interest and 56% were correct with questions on inflation.
- 39% of adults who have a formal loan are financially literate, while 27% of formal borrowers are not financially literate.
- A mere 14% of Indian adults save at a formal institution.
- Going by the gender gap, 73% of men and 80% of women in India are not financially literate.
- 26% of the adults in the richest 60% of households are financially literate, while 20% of the poorest 40% of households are financially literate.
What is
financial literacy?
Simply put, it is the difference
between living from pay check to pay check and building a wealth. It is the
ability to understand financial implications of what you do – just to put it in
perspective, almost everything you do has financial implications.
Statistics say that 95% of businesses
fail because of financial mismanagement – not because of technology, labour or
natural calamities, these make only 5% of total business failures.
Financial mismanagement is also the
root cause for poverty and biggest obstacle in a country’s growth.
By now, it’s clear to us that
financial literacy is the difference between ‘rich them and poor you’. It’s
been established how important financial literacy is, but I will go ahead and
give you a few more reasons.
- It will save you from the ‘bad
debt’ cycle.
- You will be able to afford what you need and want.
- You can maximise your income.
- Have a good retirement
plan.
- Save taxes, legally.
- Plan for retirement.
- You are better prepared for an emergency situation.
- Bridge the gap between
‘poor you to rich you’.
- You will make money work
for you, instead of working for money.
Like many others, you are also
probably scared and intimidated of the fancy and complex finance terms. So, I
will not confuse you with those fancy terms. I will tell you about the four
pillars of financial literacy, to improve financial management.
1. Debt: Borrowing money from an agency or organisation. Analyse what
you ‘need’ and what you ‘desire’. Borrowing money for what you ‘need’ is good
debt while using credit for what you desire is ‘bad debt’.
2. Saving: The money that you haven’t spent. Keep it into an interest
yielding account. Not only is your money safe, but you are adding more to it.
3. Budgeting: Planning and managing your money. Understand your expenses;
see where you can reduce expenditure. This will increase your savings.
4. Investing: The most crucial and ignored part of financial literacy.
This is what people mean when they say ‘make money work for you’. This is what
creates and grows wealth while keeping your money secure. You ‘invest’ your
money into something that will economically appreciate over time – property,
company, stocks, mutual funds etc.
Financial literacy affects every area
and is affected by every area. It is not limited to financial department of a
company. Decisions made by every department – marketing, sales affects a
company’s financial position. In fact, financial literacy is not only for
business owners or companies. It is important for everyone and must begin at
the grass root level.
Following
are the ways in which India as a country can improve its general financial literacy-
- Financial
Literacy Month: Observing
a financial literacy month and conducting nation-wide awareness programs. Countries
that already have this include USA, Canada and Philippines.
- Introducing Basics of Finance in school curriculum
- Using technology to your advantage with trusted online courses and websites
Definitely, most of us have poor knowledge and we have along way to go but we can start on an individual level . Actions also need to be taken by the government to promote financial literacy dividing
the target groups on the basis of income, gender and age.
This will certainly go a long way as
it will make us less prone to exploitation at the hands of crooks and will play
a major role in financial stability of the country.
Example of how money works in ways you didn’t probably know-If you deposit 5,000 rupees every month, compounding it at a rate of 5% monthly, you would have 19,49,710 rupees at the end of 5 years. Which is 6.5 times the amount (3,00,000 rupees) you would collect by depositing 5,000 rupees every month for 5 years without compounding.
Easy references for you to start-
https://bethebudget.com/financial-literacy/
https://www.youtube.com/watch?v=LjqLJ5aYpcQ
https://financialliteracy.rocks/financial-literacy-for-young-adults//
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