Financial literacy in India

According to Visa Global Financial Literacy Barometer survey, India stood at 23rd in a list of 28 countries on the financial literacy front. The survey pointed out that "“Many people in India have set aside savings to weather a financial rainy day, but the lack of money management discussions in the family may set the stage for their children to struggle with finances".

Key Points of the survey
1. Indian parents do not talk to their children on money management as frequently as they should, and the country averaged 10 days versus the global average of 19 days per year when it comes to discussion on budgeting, savings and responsible spending.

2. Indians are under—invested when it comes to saving for emergencies.

3. 34% of Indian women do not have a saving at all as compared to 29% for men.

4. Only 35% of Indian population are financially literate.

After reading the survey results, 2 questions might have poped out in our mind. What is financial literacy and  am I financially literate?. WIKI says that it is the ability to understand finance. I know that definition would not be an easy one to digest and we need bit more clarity on this. Basically, it is the set of plans and actions that would make you financially independent in your best and worse times, within your financial earning abilities. If you are able to make independent and effective financial measures to your family and you, for your present and future needs, I would say, you are financially literate.

Importance of Financial literacy in India
Indians are well known for their savings capabilities.  It has one of the highest savings rate in the world - our gross household savings rate, which averaged 19% of gross domestic product (GDP) in 1990s increased to about 23% in 2003-04 and has been growing ever since. But the concern is where the money is being saved. Investments by households have been more into either bank fixed deposits, risk-free government-backed securities and low-yielding instruments, or in non-financial assets (gold, gold and again gold!!).

Most of us save money without prioritizing personal financial goals, without properly allocating savings to different asset classes and without understanding the real rate of inflation adjusted returns.

Nearly 40% of rural Indian households and 25% of urban Indian households borrow money from informal sources - mainly from money lenders to meet the expenditures such as health, medical treatment and other daily expenses.

A majority of our households do not use modern financial markets. As per an RBI report, only 5% of household savings was invested in equity, mutual funds and debentures even in late 2000s. This is considered as the main reason for our economic vulnerability, as in all modern financial markets FII's share is much more when compared to the money invested by Indians.