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Financial literacy: When, what and how The need for financial literacy and its importance for financial inclusion have been widely recognised. Based on various research studies on financial literacy initiatives, this column outlines financial services’ needs of a poor household at various stages of its life cycle. It contends that customising financial literacy programmes according to the stage of life of targeted individuals is crucial for their effectiveness. The need for financial literacy and its importance for financial inclusion have been acknowledged by all possible stakeholders - policymakers, bankers, practitioners, researchers and academics – across the globe. Various financial literacy programmes have thus been implemented by concerned institutions, with a lot of them being unique in their approach and delivery mechanisms. For instance, programmes have been customised to suit the requirements of students, microfinance clients, slum dwellers, bank clients etc. Some programmes have a particular focus such as a specific financial product, developing saving habit among target group, customer protection, business management, and so on, while others are more general and deal with money management skills, advocating healthy financial practices etc. Varied techniques such as videos, stories, activities, comic books etc. are used, along with traditional methods of classroom training. Banks like Punjab National Bank and State Bank of India have also begun setting up ‘financial literacy and credit counselling centres’ that people can go to for gathering requisite information. While a lot of experimentation has been done in the realm of financial literacy, it is difficult to point to one standardised method or approach that works best in all scenarios with all kinds of target populations. Although this could be attributed to the lack of a standard definition or measurement tool, it is also a result of India’s diversity in terms of language, caste, culture etc. Hence, it is challenging to design a product that ‘fits all’ sections of the population equally well. Financial services’ needs at different stages of a poor household’s life cycle Going back to the drawing board, it is important to work with the premise that financial services’ needs of an individual vary primarily by age. While these also depend on financial status, social status and other factors, let us keep that constant and consider the life cycle of a poor household (primary target beneficiaries of financial literacy programmes). Children initially stay with parents and go to school. Following studies, they may move out of the parents’ house and begin to live on their own (or with friends/ housemates) and earn their own living. They then get married, form a couple and start their own family. By this stage, the parents are old, with reduced income levels because of lower physical capacity to work. They seek support from their children who have just been endowed with new responsibilities of a family, with children of their own to raise. The cycle continues with these children getting educated, moving out to find a job and then eventually raising their own families, while assisting their parents. Figure 1. Life cycle of an individual/ household

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Financial literacy: When, what and how The need for financial literacy and its importance for financial inclusion have been widely recognised. Based on various research studies on financial literacy initiatives, this column outlines financial services needs of a poor household at various stages of its life cycle. It contends that customising financial literacy programmes according to the stage of life of targeted individuals is crucial for their effectiveness.The need for financial literacy and its importance for financial inclusion have been acknowledged by all possible stakeholders - policymakers, bankers, practitioners, researchers and academics across the globe. Various financial literacy programmes have thus been implemented by concerned institutions, with a lot of them being unique in their approach and delivery mechanisms. For instance, programmes have been customised to suit the requirements of students, microfinance clients, slum dwellers, bank clients etc. Some programmes have a particular focus such as a specific financial product, developing saving habit among target group, customer protection, business management, and so on, while others are more general and deal with money management skills, advocating healthy financial practices etc. Varied techniques such as videos, stories, activities, comic books etc. are used, along with traditional methods of classroom training. Banks like Punjab National Bank and State Bank of India have also begun setting up financial literacy and credit counselling centres that people can go to for gathering requisite information.While a lot of experimentation has been done in the realm of financial literacy, it is difficult to point to one standardised method or approach that works best in all scenarios with all kinds of target populations. Although this could be attributed to the lack of a standard definition or measurement tool, it is also a result of Indias diversity in terms of language, caste, culture etc. Hence, it is challenging to design a product that fits all sections of the population equally well.

Financial services needs at different stages of a poor households life cycle

Going back to the drawing board, it is important to work with the premise that financial services needs of an individual vary primarily by age. While these also depend on financial status, social status and other factors, let us keep that constant and consider the life cycle of a poor household (primary target beneficiaries of financial literacy programmes). Children initially stay with parents and go to school. Following studies, they may move out of the parents house and begin to live on their own (or with friends/ housemates) and earn their own living. They then get married, form a couple and start their own family. By this stage, the parents are old, with reduced income levels because of lower physical capacity to work. They seek support from their children who have just been endowed with new responsibilities of a family, with children of their own to raise. The cycle continues with these children getting educated, moving out to find a job and then eventually raising their own families, while assisting their parents.

Figure 1. Life cycle of an individual/ household

This simple story of the household involves an exchange of dependency and responsibilities at each stage. Considering just the financial services needs of the household over its life cycle, we see that they are very specific to the stage that the household or individual is in at a given point of time. For instance, as a school going kid (in his/ her teenage), an individual might require know-how of savings so that he/ she can save pocket money or scholarship and utilise it effectively. A young person who has just started working and receiving a salary, would require a banking service, complex investment products (given that youth are more inclined to risk-taking and are open to experimentation) and remittance services that would enable him/ her to send a portion of earnings to parents who are not able to do as much physical labour as they could earlier. As time progresses and the individual gets married and starts a family, he/ she is required to think about safer financial products and longer term investments. His/ her dependency ratio is highest at this point both children and parents are dependent on the individual. As the individual becomes older, simple banking services are required to access remittances transferred by children, and welfare transfers from the government.Considering all of these specific financial services requirements at various junctures in life, four teachable moments can be identified: school-going child (grown up enough to understand money and saving), youth (stepping into employment), middle-aged (married, and starting a family), and old age. These are the specific stages of transition, when the need for financial products/ services takes a leap and it is crucial to make the right financial decisions. Thus, these moments are best suited for receiving and benefitting from customised money management advice.

Customising financial literacy modules based on stages of life After establishing the what and when of financial literacy, it is important to understand the how of it. As an individual ages, a lot of psychological and behavioural attributes change, as per the social, political or economic environment. The three prime attributes that notably differ with each of the four stages of life and should be thought through well while designing any education module, but especially a financial literacy module, are: attention span, cognitive ability, and general points of attraction.Table 1 maps the four teachable moments with the associated attributes, along with the work that has been done so far in terms of implementation of financial literacy initiatives and assessment of the impact of the initiatives. Analysing each of the stages independently would throw light on the way forward in designing financial literacy modules. A cross analysis of these, however, highlights the fact that there is little or no commonality among them and each is required to be taught with different instruments varying in content, delivery mechanism and need for innovation.

Table 1. Mapping teachable moments with attributes and financial literacy methods


Attention span/ Cognitive abilityGeneral points of attractionTried methodsEvidence of impact

School-going kidsStarts evolving at age six

Take time to solve problems requiring abstract thinking

Are immature

Dont fully understand emotions and concept of timeGames

Social networking

Learning by doingComics

Piggy banksNo research has been done

Youth (stepping into employment)Ambitious

Good sensory abilities

Memory skills at peak

Logical thinking and reasoning abilitiesNeed for independence, self-reliance, and freedom from authority

Peer acceptanceSoap Operas

Money games

Simulation gamesSome studies show positive financial behaviour like better money management skills

Adults/ middle-agedIntellectually sharp

Slow reaction time

Time for new learning decreases but ability does not change vis--vis youth

Memory starts shrinkingReal life situations related to family, job, adversities etc.Videos

Indoor sessions




Charts/ postersChanges in awareness and knowledge

No evidence of behavioural change

Incentives to attend the training sessions and then to implement the learning should help

Delivering financial literacy along with a product (credit/ insurance) may facilitate adoption of practices as beneficiaries can link it with their livelihood

OldLow visual and auditory acuity

Slower response to sensory stimulation

Loss of recent memory

Divided attention

Perceived meaninglessness of taskParenting experience

Religious eventsAdult Education Programme

Common gatheringsNo research has been done

To elaborate, the cognitive ability of a person starts developing when he/she starts going to school. At this stage, an individual is immature with low or no understanding of emotions and concept of time. They take time to solve problems that require abstract thinking. They are usually attracted to things that are colourful, and are significantly influenced by games. Learning by doing is the mantra that drives childhood. Kids these days are also involved in social networking. Although no research has been done to study the impact of any kind of financial literacy training on school-going kids, instruments like comic books and concept of saving in a piggy bank seem promising, given the attributes of their age.Similarly, a youngster just stepping into employment is characterised by good sensory abilities and memory skills. Reasoning and logical thinking are fully developed. At this stage, an individual is highly ambitious and feels a need for independence, self-reliance and freedom from authority. Acceptance among peers is equally essential. Keeping these in mind, some teaching mechanisms like money games, simulation games and soap operas have been designed and adopted globally, yielding positive results on financial behaviour of the youth (Tufano et al 2010).Skipping to the last teachable moment, no financial literacy programme focuses on the elderly, and the research on developing a module for this age group has also been nil. There have, however, been government initiatives such as the Adult Literacy Programme that could be used to impart financial education. For such a financial literacy programme to be designed, attributes like divided attention, loss of recent memory and slower response to sensory stimulation need to be considered. Also, their parental experience and affinity to religious events and activities could be leveraged upon. Occasions of interest to this age group should be used to bring them together and learning should be derived from discussions of their experiences in life. In contrast to the work in the sphere of financial literacy that has been done with school-going kids, youth and elderly, various interventions have been developed and implemented for middle-aged people. This segment of the population is intellectually sharp but with a relatively slower reaction time as compared to youngsters. People in this bracket take time to learn new things but their ability to do so does not change. They mostly understand things that they can relate to their lives, families, jobs, adversities etc. A lot of innovative methods have been adopted to teach them best financial practices, some aligning with their attributes and others ignoring them. Most of the studies that have been conducted so far with this particular group illustrate an impact on financial awareness and knowledge of the participants but limited effect on their financial behaviour, which in fact, is the key intended outcome of any financial literacy programme (Cole et al. 2009, Cole and Shastry 2009). Some implementers believe that incentives, like bundling financial literacy training with a financial product (for instance, credit to start a small business) that help the participants to practice what is preached (fund management, book keeping, inventory management, etc.) and to visualise the impact of the training for themselves (increased revenue and profits), are more likely to be received well and to create an impact. Scientific evidence for the above is, however, lacking.

One size does not fit all Even though there is no blueprint to a successful financial literacy programme as yet, taking a cue from the above mentioned aspects is essential to come closer to designing one. The efforts that are being put in by stakeholders to empower people while making them financially literate are commendable but need to be more focused and customised as the rule of one size fits all doesnt seem to apply in this sphere. Providing theright adviceat theright timeand with theright approachis the key and this indicates vast scope for work and innovation in this field.

Mirror, mirror on the wall, which is the most dynamic state of them all? This column analyses the economic performance of 16 major Indian states over the last three decades. It finds that Bihar has improved the most during the 2000s, Kerala has always been a star performer in terms of HDI, Rajasthan has achieved the maximum decline in inequality, Tamil Nadu tops in poverty reduction, and the levels and growth rates of per capita income of Maharashtra and Gujarat have consistently been the highest. However, no one state can be singled out as the top performer in the 2000s. Moreover, while Gujarats overall record is undoubtedly very good all through the last three decades, its performance in the 2000s does not seem to justify the wild euphoria and exuberant optimism about Modis economic leadership. In particular, there is no evidence of any significant growth acceleration in Gujarat in the 2000s.The forthcoming election, it seems, will be fought mainly on issues of governance and economic performance. To the extent there is a focus on the personalities involved, such as Narendra Modi or Rahul Gandhi or Arvind Kejriwal or potential Third Front candidates, such as Nitish Kumar or Mamata Banerjee, most of the discussion is about their economic track record or lack thereof. This is a welcome development. However, in the grand theatre of Indian politics, facts often take a back seat to slogans, and opinions get sharply polarised. For example, we either hear that Gujarats economic performance has been nothing short of miraculous due to the magic touch of Modi or that Gujarats so-called growth story is all hype and a Public Relations campaign aimed at covering up a dark underbelly of poverty, inequality, and low levels of human development indicators.

A lot of this debate reflects disagreements about two sets of issues. First, there are many dimensions of economic performance level of per capita income1, growth rate of per capita income, Human Development Index (HDI) that put weight on not only income but also on non-income measures (for example, education and health), level of inequality, percentage of people below the poverty line, and many others. Which index we choose to emphasise reflects either our preferences as to the aspect of economic performance we value the most, or our views as to which dimension has to be improved (say, per capita income) for bettering the dimension we care about (say, poverty alleviation).Secondly, even if we focus on one particular dimension of economic performance, how do we attribute changes in this dimension to the role of a specific leader? For example, how do we isolate the contribution of Narendra Modi and Nitish Kumar to the growth of Gujarat and Bihar, respectively, in the 2000s, especially as the country as a whole experienced a growth spurt in this period?

Attributing states economic performance to specific leaders Therefore the first issue is how to separate the leaders contribution from other factors driving his/ her states performance, for example, a general improvement in the economic environment of the country that benefits all states. The solution to this problem is to calculate the difference between the growth rate of the state for the years this leader was in power and the average growth rate of the rest of the states during the same period of time. If this difference is positive, then it is safe to say that under this leader the state grew faster than the rest of the country.However, this is not enough. What if the state in question was always growing faster than the rest of the country? How can we then isolate the specific role of this leader?Returning to the example of Modi, in order to claim that Modis leadership had a significant impact on Gujarats economic performance, it is not enough to show that Gujarat did better than the rest of India after he came to power in 2001. We have to demonstrate that the gap between Gujarats performance and that of the rest of India actually increased under his rule. This is the crux of the statistical method called differences in differences2, which is the standard approach used in modern economics to evaluate the performance of policies, organisations or individuals. Turning to evidence, we look at key indices of economic performance - level of per capita income, its growth rate, HDI, inequality, and the percentage of population below the poverty line for sixteen major Indian states (in terms of population)3.

Per capita income In terms of average per capita income ranking of states over the 1980s, 1990s and 2000s, the top three states are Haryana, Punjab and Maharashtra (Table 1). Gujarats average rank is 4. On the other hand, Bihar, which has been in the news lately due to its spectacular turnaround over the recent years under the leadership of Nitish Kumar, has been consistently at the bottom of this league with a rank of 16, below Uttar Pradesh (UP), which too has remained steady at number 15.

Table 1. Rank of states in terms of per capita income, three-year averages

In terms of improving their relative ranking over the span of three decades, the top performers are Maharashtra, Gujarat, Kerala and Tamil Nadu. Interestingly, the rise in the ranks of these four states has been accompanied by the relative decline of one state, namely Punjab, which went from being the very top state in the 1980s and 1990s, to number 7 in 2010. This suggests that, as in athletic races, the relative rank of a state may go up or down due either to a change in its own performance or to a change in the performance of a rival. Thus, to obtain a fuller picture of the economic performance of these states, we also need to consider their relative growth performances. Is the rise in the rankings of states like Maharashtra and Gujarat also matched by a faster growth rate on their part? Also, are there states that are lower down in the ranking but are growing faster than average and so can hope to improve their ranking in the future?

Annual average growth rates In Table 2, we present the annual average growth rates of the major states for each of the past three decades. The highlighted boxes show states that are performing better than the national average in each decade. Only three states have had above average growth performance in all three decades Gujarat, Tamil Nadu and Maharashtra. In the 2000s, the other top performers were Andhra Pradesh (AP), Bihar, Haryana and Kerala.

Table 2. Average annual growth rate of per capita income, by decade

Interestingly, the growth rate of Punjab, initially one of the top ranked states in terms of per capita income level, has been below the national average in the last two decades. Thus, it is notsurprising that Punjab is slipping down in rank below other faster-growing states. Bihar, on the other hand, is poised to rise up the ranks with a higher than average growth rate of per capita income in the 2000s.

Economic performance of states in 2000s Now we come to one of the key questions. Which are the states that improved their performance in the 2000s both with respect to their past performance in the earlier two decades, and with respect to the performance of other states in the 2000s? In Figure 1, we plot the average annual growth rates of some selected states against the national average over time. This graph shows an interesting trend while Gujarat, Tamil Nadu and Maharashtra have been going neck to neck (along with Haryana, which is not shown in the figure), and as already mentioned, have consistently performed above the national average, none of them have experienced a huge acceleration in growth rate in the 2000s.In contrast, Bihar, which was consistently doing worse than the national average in both the 1980s and the 1990s, shot up above the national average in the 2000s, converging to rates achieved by established leaders like Gujarat, Maharashtra and Tamil Nadu.

Figure 1. Average annual growth rate of per capita income of selected states, by decade

Note: For the sake of visual clarity, not all states are depicted in this and the subsequent figures. The rapid rise in Bihars growth rate is also evident from Figure 2, in which we compare the deviations of growth rates achieved by each of these selected states from the national average, for the 1990s and the 2000s. We can see that Bihar seems to have made the maximum gain in this dimension. While in the 1990s, Bihars average growth rate was 2.7 percentage points lower than the national average, in the 2000s it was 1.3 percentage points higher. This means that Bihar improved its growth performance by an additional 4 percentage points over the national average in the 2000s, relative to what it achieved in the 1990s. In contrast, leaders like Gujarat appear to have improved by a much smaller margin (0.2 percentage points) over the national average in the 2000s, relative to the 1990s. Maharashtra, too, gained only 0.3 percentage points over the national average during the same time.

Figure 2. Deviations from national average for 1990s and 2000s for selected states

To sum up, if awards must be given, Bihar deserves the prize for the most dramatic turnaround in the 2000s. Gujarat gets credit for having steadily been on top of the league in terms of both the level of per capita income and growth rate, but has to share the honours with Maharashtra and Haryana in that category. Punjab dropped out of the top 5 in levels rankings in 2000s while Kerala broke into this select group. However, the key point is that there is no evidence of any significant growth acceleration in Gujarat in the 2000s.One could argue that it is easier to turn around a state that was at the bottom of the league like Bihar than to maintain, or to marginally improve, the performance of a state already at the top of the league, like Maharashtra, Haryana or Gujarat. After all, there is greater scope for improvement in the former case. Conversely, one could also argue that it is more challenging to turn around a backward state, because if it were easy, someone would have done it already. This is reinforced by the argument that Bihar is the third largest state, whereas Gujarats rank is 10th in terms of population and it is difficult to achieve sharp improvements in a larger than a smaller state.

Human Development Index (HDI) Many would argue that per capita income and its growth are only partial measures of economic development. Among other things, these indices ignore aspects of development that are not captured in income, such as life expectancy or education. Nor do these take into account income inequality, or the extent of poverty. Therefore, we now turn our attention to the performance of the states in terms of HDI, level of inequality and the percentage of people below the poverty line.In Table 3, we present the HDI performance of all the major states for selected years over the last three decades. The highlighted boxes indicate states with HDI scores above the national average for each of these years. Kerala, Punjab, Maharashtra, Haryana, Tamil Nadu, Gujarat, and Karnataka are consistently in this group.

Table 3. State-wise HDI scores, by decade

In Figure 3, we plot the performance of some selected states with respect to the all-India average in terms of HDI. As expected, Keralas performance is literally off the charts. On the other hand, Maharashtra, Tamil Nadu and Gujarat appear to have been going head to head. Their trends tell an interesting story. While Gujarats HDI performance was above the national average in the 1980s and 1990s, it decelerated in the 2000s and came down to the national average. In contrast, Tamil Nadu and Maharashtra, which started off at a similar level of HDI as Gujarat in the 1980s, have continued to perform better than the national average in the 2000s. Bihar, on the other hand, has consistently been below the national average, but has made significant improvements over the last decade and shows signs of catching up to the national average. Figure 3. HDI scores of selected states, by decade

Thus, the HDI rankings of states present a different story than their rankings of per capita income levels or growth rates, with one exception. The only state that is in the top 3 in all the rankings so far is Maharashtra. Otherwise, the top prize for HDI goes to Kerala, and the most improved in the 2000s prize goes to Bihar.

InequalityNext, we look at ranking of the states in terms of level of inequality (Table 4) based on consumption expenditure. Assam and Bihar have consistently had the lowest levels of inequality according to this index. However, the state that really stands out, both in terms of relative ranking and absolute decline in inequality is Rajasthan. Between early 1980s and late 2000s, Rajasthans relative ranking improved from 15th to third, while its inequality measure fell by 14%, the largest decline for any state. On the contrary, states that are leaders on the growth dimension are found to perform worse on inequality. For example, Figure 4 shows that while inequality in Gujarat was lower than the national average in the 1980s and 1990s, it actually rose to levels above the national average in the 2000s. Maharashtra, Tamil Nadu and Kerala, too, have consistently recorded higher levels of inequality than rest of India, with Kerala recording a sharp spike in the 2000s. Table 4. Rank of states in terms of inequality (measured by Gini Coefficient4), by year

Figure 4. Inequality in selected states, by year

Poverty Lastly, we consider the percentage of population below the poverty line (Table 5). We find that Himachal Pradesh, Punjab, Kerala, Gujarat, Haryana, AP and Karnataka have consistently had lower levels of poverty than the all India average. Gujarats performance in poverty reduction over the years has been similar to that of AP and Kerala. However, if we look at improvements in performance over the last decade, then Tamil Nadu is one of the top performers. Starting from a level of poverty that was higher than the national average in 1983, it ended up at a much lower level, similar to that of Gujarat, AP and Kerala, in 2009 (Figure 5). Bihar, although well above the national average in terms of poverty levels all through the three decades, has shown a sharp improvement over the last decade.

Table 5. State-wise Poverty Head Count Ratio, by year

Figure 5. Poverty Head Count Ratio of selected states, by year

Did Gujarat truly outshine other states in the 2000s in terms of economic development?

If we simply look at the figures, four facts will jump out: first, Bihar has improved the most in the 2000s, even though it has been at the bottom of the list for all indicators and still has a fair distance to go before it can climb above the national average; second, Kerala has far outpaced other states in terms of the HDI all through; third, Rajasthan was the star-performer in terms of reducing inequality; and fourth, Maharashtra and Gujarat have consistently been top performers in terms of per capita income and its growth, with Haryana and Tamil Nadu deserving mention on this count as well. All these achievements are noteworthy but it is hard to single out any state as the top performer in the 2000s. To the extent this assessment goes against the view held by many people, independent of their political leanings, that Gujarat has done spectacularly well under Mr. Modi, the explanation lies in the method that we have used to examine available data, namely, the difference in difference approach.In particular, this is what we tried to figure out: did a state that has for a long time been one of the most developed states in terms of per capita income, and was already improving at a rate higher than the rest of the country, accelerate further and significantly increase its lead under Mr. Narendra Modis stewardship? Our analysis shows that this did not happen. Both Maharashtra and Gujarat improved upon an already impressive growth trajectory in the 2000s, but the margin of improvement was too small to be statistically meaningful. So while Gujarats overall record is undoubtedly very good all through the last three decades, its performance in the 2000s does not seem to justify the wild euphoria and exuberant optimism about Modis economic leadership. Of course, it is possible that there are trends that this evidence cannot capture. Maybe with a longer time horizon, the effects of some of Mr. Modis policies will show up in the evidence, although given that Mr. Modi is now in his fourth consecutive term of power, this argument is not very strong. It is also possible that if Mr. Modi comes to power at the centre, he may well achieve a turnaround of the Indian economy due to his governance style. All that is possible in theory, but the existing evidence is insufficient to support these views.

Concluding thoughts As Keynes had famously said in the context of stock market bubbles, often our decisions to do something, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits a spontaneous urge to action rather than inaction or rational calculation. In politics, too, maybe it is animal spirits that rule, not rational calculations based on statistical evidence. However, while election campaigns are run on slogans and sentiments, good governance depends on facts and figures. Bubbles eventually burst, and waves of euphoria recede. At some point the numbers need to add up.

A slighted different version of this essay was published by the Outlook magazine in their March 22, 2014 issue. We would like to thank, without implicating in any way Sanjay Banerji, Pranab Bardhan, Francesco Caselli, Parikshit Ghosh, Reetika Khera, Ashok Kotwal, Milind Murugkar, and Sudha Narayanan for helpful feedback. We thank Ishan Bakshi for sharing data on inequality with us. Editorial help from Manishita Dass is gratefully acknowledged.Notes: 1. Per capita income of a state implies Net State Domestic Product (NSDP) per capita.

2.In the simplest set-up, difference in differences compares the outcomes of two groups for two time periods. One of the groups is exposed to a treatment (for example, a policy change) in the second period but not the first. The second group is not exposed to the treatment in either period. To provide a clean measure of the impact of the treatment, the difference in differences technique subtracts the average gain of the second (control) group over the two periods from that of the first (treatment) group. This removes biases arising from permanent differences between the two groups as well as biases arising due to general (trend) changes in the treatment group over time.

3.The larger a state, the harder it is to achieve improvements in per capita average economic indicators. Therefore, comparing a large state like Uttar Pradesh (UP) and a small state like Nagaland can be misleading and it is better to compare like with like. However, we have to keep in mind that even among the major states, turning around a state with a larger population is a harder task.

4.Gini coefficient is the most commonly used measure of inequality. It captures the extent to which the distribution of income among individuals in a country deviates from a perfectly equal distribution. Thus, a Gini coefficient of 0 represents perfect equality while a coefficient of 1 represents perfect inequality.

Data Sources: Per capita income:State level per capita income implies real net state domestic product (at constant prices) per capita. These data were downloaded from the Reserve Bank of India (RBI) website, available athttp://www.rbi.org.in/scripts/AnnualPublications.aspxhead=Handbook%20of%20Statistics%20on%20Indian%20Economy. Growth rate of state per capita income was calculated on a year-on-year basis using the formula yt -yt-1/yt-1and these yearly figures were averaged to get the decadal figures.

Human development index (HDI):State level HDI data were downloaded from www.indiastat.com for years 1981, 1991 and 2001 and from the UNDP India report Inequality-adjusted Human Development Index for Indias States 2011 by M.H. Suryanarayana, Ankush Agrawal and K. Seeta Prabhu for 2011, available Inequality:State level inequality data is obtained from calculations of Gini coefficients based on National Sample Survey (NSS) estimates of monthly per capita consumption expenditure at uniform recall period (URP). We thank Ishan Bakshi for sharing this data with us.

Poverty:State level data on percentage of people below poverty line for years 1983, 1987, 1993, 2004 and 2007 are obtained from Mukim and Panagariya (2013) A Comprehensive Analysis of Poverty in India, available athttp://academiccommons.columbia.edu/catalog/ac:166686. These data were calculated using the 1973-1974 Lakhdawala poverty lines. Data for 1999 is obtained from P.K. Nayak, S. K. Chattopadhyay, A. V. Kumar and V. Dhanya (2010) Inclusive Growth and Its Regional Dimesions RBI Occasional Papers, Vol 31, No. 3. The data were originally collated from Planning Commission of India.

What can the private sector offer Indian education?Do private schools in India really produce more learning, or do they deepen social and economic divides without adding much in terms of actual skills and education? Based on a review of the existing literature, this column sheds light on these questions, and discusses avenues for future research that may help understand how private players may be leveraged to address the learning crisis in the country. Few things in education policy in developing countries are more contentious than what the role of the private sector should be. Much of the dispute comes from contrasting opinions about the nature of private schools as they exist today: should we think of them asoffering a substantial route for actually delivering quality education for many millions of children, especially in the face of severely underperforming government schools? Or should we think of them as essentially thriving on cream-skimming students from more privileged backgrounds, deepening social and economic dividesbut adding little in terms of actual skills and education. These are empirical questions. Here, I present some evidence, both from my own research and that of others, which speaks to these issues directly in the Indian context. More importantly, I discuss the avenues which current research hasnt focused on but which are critical for understanding how the private sector may best be leveraged in India.

Do private schools really produce more learning?It is undisputed that private school students perform better on a range of tests than government school students. It is also undisputed that probably a substantial portion of this difference is accounted for not by the schools but by the type of households these children come from and their greater socioeconomic advantage in short, if the private schools had to teach the students currently in government schools, they might not be able to do better either!This has been the key question on which quantitative research on private schools has focused on in India and it seemed that similar children in private schools scored better than their peers in government schools evenaccounting for those of the background characteristicsthat were observed in the data (Desai et al. 2009, French and Kingdon 2010). And yet consensus was difficult who could say whether the data observedeverythingthat differed between private and government school students?

This impasse changed this year with two studies which significantly advance the robustness of our knowledge in this area. In recent research, I used panel data on two cohorts of children in Andhra Pradesh (AP) and Telangana to study whether the amount children learnt in private schools (the value added of private schools) differed from that in government schools (Singh 2015, journal versionhere). The basic idea is simple: to the extent that unobserved factors are already reflected not only in a childs test scores now but also his test scores from earlier years, we can get much more robust answers to this question by studying the amount children learn over time in government vs. private schools rather than what they know at any one point. In a nutshell, I find that in the core academic subjects Mathematics and Telugu private school students in primary grades were not learning any more than government school students. But they were learning a lot more English and that is why parents said they were sending children to private schools in the first place (James and Woodhead 2008). In Telugu-medium schools, these extra English skills were gained withoutanyloss in core math or Telugu skills. At secondary school ages, theres somewhat more evidence of greater learning in math and Telugu but the gains are modest, and certainly far from where any absolute expectation of what children should know at the end of secondary schooling. I also dont find any evidence that private schools increase students psychosocial skills, specifically the extent to which they believe they can shape their future outcomes through their own efforts (agency) or their belief in their own abilities (self-efficacy). These results agree very closely with results ofMuralidharan and Sundararaman (2015)also coincidentally in AP at the same time andalso published this year, thus boosting the confidence in the results from both studies even more; see here forKarthiks summary of his work.So the basic message seems quite clear: private schools do seem to produce more learning than government schools but, with the exception of English, these differences are not very large.

What about the effect of private schooling on the inequalities in learning?Concerns about whether private schools cause higher achievement are only a part of the story - the bigger concern for many scholars is about whether they entrench socioeconomic advantage by providing greater opportunities to those from more advantaged backgrounds (see for example, Woodhead, Frost and James 2013). It is clear that students in private schools tend to be from richer backgrounds, urban and upper castes. The differences are, though, perhaps less muted than most observers assume: while 30% of students in government schools are first-generation learners, so are 20% of private school students (Muralidharan and Kremer 2008). In thinking of Indian private schools, as with other aspects of the education system, we seem to think disproportionately of only the top end. In some dimensions, most notably gender, the gap in private school attendance seems to have widenedover timewhile in others, such as the rural-urban gap, it may have narrowed in recent years (Maitra, Pal and Sharma 2011, Azam and Kingdon 2013). Still, it remains very much the case that access to private schools is far from equitable.Does this matter for the outcomes of children? A leading argument against segregation of students by socioeconomic status or other markers such as race and caste has been that being seated in the same classrooms and studying together has independent learning value and teaches the students valuable social skills.In a particularly important contribution, Gautam Rao at Harvard University looked at the effect of bringing in students from poorer backgrounds (Economically Weaker Sections) in Delhi to elite private schools, on both the rich and the poor students. He finds that having poor classmates makes wealthy students more social and generous, more likely to volunteer for charities in schools, and less likely to discriminate against poor children. For any educational system, these are important outcomes. And this comes without an increase in classroom disruption, or lower test scores in math or Hindi: the only sign of a trade-off at all is a modest (and only marginally significant) decline in English scores (Rao 2013).

So, in sum, the empirical evidence thus far on stratification does seem to indicate that there are good reasons to be concerned: the social and economic inequalities in access exist, in some dimensions they may be increasing, and they have important effects on the non-academic (but crucially important) outcomes of children.The unexplored (and unevaluated) potential of the private sectorThe findings summarised above do not, however, mean that the private sector has little to offer by way of improving the dire learning crisis in Indian schools. What are the ways in which it might do so?One mechanism, previouslywritten about by Karthik Muralidharan, looks at how Clause 12 of the Right to Education (RTE) Act may be much better designed to maximise the chances of improving both test scores and equity within the current system and the current legal framework3. This is, of course, an important (and feasible) reform that deserves close attention.

But the privatesectorin education, including all non-State providers of education, might well be able to offer much more. The most unrecognised role of the private sector, but perhaps the most important, is as an engine of innovation. Thinking of the sources of knowledge about learning levels in India in the past decade, and how to improve them at scale, two of the most significant advances have been (a) the documenting, year-after-year, of the immense and stubbornly persistent learning deficitsby the ASER reportsand (b) the potential for unqualified volunteer teachers to increase learning significantly for children lagging behind the curriculum. The initial impetus on both these fronts came from civil society and non-State actors, especially the Public Report on Basic Education (PROBE) and the extensive work done by the Non-governmental Organisation (NGO) Pratham. Nor are NGOs and civil society groups the only possible source for such innovation. Various outlets have written about the intriguing example of theBridge academies in Kenya, which with a heavily-scripted curriculumaims to standardise pedagogy and provide the teaching methods support that most teachers have not received whether because they never did get teaching qualifications or, as likely, the teaching qualifications just did not prepare them for the practical aspects of classroom management, lesson planning and day-to-day pedagogical practice. Several organisations in India are also experimenting with pedagogical reform (see, for example, this article onXSEEDEducation) and better practices in this dimension could be substantially rewarding.How can these innovations from the private sector help transform Indian education, given that non-State organisations themselves are unlikely to reach the scale of the public education system and, in the case of the commercial private sector, suffer from the same selection on ability to pay as the private school sector itself? At least three models spring to mind.

The first is the model of Private Public Partnerships (PPP), akin to Charter Schools in the US, where the government pays for the students at the rate in government schools (no top-up fees are collected) and ensures admissions are non-selective but private operators decide how the money is spent and how teaching and classrooms are organised. Althoughoften controversial, this model is already being considered or experimented upon by various state governments (see for example,this school in Delhi operated by Ark Indiaor thedraft policy in Rajasthan). Experimenting with this model can help answer two key questions that we do not yet have the answers to: first, we know that the private sector can produce similar gains in learning to private schools at a third the total cost (see Singh 2015, Pritchett and Aiyar 2014) but can it translate higher funding into much better results? And second, what is the effect of inserting a high-quality education provider into the market for education - does it lead to an improvement also in other schools through competition? The second is the model where innovations are developed in the private sector, enabled by much greater decentralisation, but then adopted by the public sector. An example here is Prathams Teaching at the Right Level (TaRL) approach developed through their extensive work on remedial education but now also extended to government schools. Whether all such knowledge transfers will work in government schools remains, of course, an empirical (and evaluable!) question since it may be that the binding constraint of weak governance is too strong.The third is a model where private providers supplement existing government schools. Across the country, a very large number of students go toafter-school private tuition so there clearly is a demand for this sort of instruction which is currently met by a large number of unorganised small-scale tutors with little causal evidence of impact. It is in this space of supplementary and remedial instruction that larger-scale private providers could significantly raise quality by promoting suitable pedagogical approaches for instance, the Balsakhi programme promoted by Pratham or computer adaptive learning tools such as the Mindspark centres in Delhi run byEducational Initiatives.

Where does all of this leave us? The existence and the rapid proliferation of low-cost private schooling provide a stark indictment of the current state of schooling.As Karthik Muralidharan memorably summarised, What does it say about the quality of your product that you cant even give it away for free?That said, at least on the basis of the evidence we now have, we certainly should not expect the private sector alone to provide a substantive solution to the learning crisis in our schools in terms of the basic abilities to read, write and do simple math: while private sector schools arecertainly more productive, by producing the same learning gains at a fraction of the total cost spent per student in the state sector, the absolute increment in these fundamental skills is very small compared to the enormous gap between students actual achievement and any objective standards of quality we expect a functioning school system to deliver. And itisprudent, even when documenting the greater productivity or the modest absolute gains in the private sector, to worry about the effects of a stratified schooling system. Vouchers and other means to enable poorer students to access private schools may help keep inequality of access in check but a lot depends on the precise design of policies (and whether they can be manipulated): past experience on voucher schemes havent always been successful in this regard (as the Chilean example shows;Hsieh and Urquiola 2006).The private sector, through greater innovation and greater nimbleness than the government schooling system, might well provide the pedagogical innovations needed to address the incredibly low productivity of Indian schools. Perhaps through PPP models and voucher schemes, it can also demonstrate the true potential of learning levels that current per-student spending in the state sector could produce. And through supplementary and remedial education, it might mitigate the effects of a failing school system. Eventually, however, solving the learning crisis comprehensively will require substantive reform in the government schooling system much as we might wish to ignore the elephant in the room of weak governance in government schools, that probably still is where the most promising reforms lie.

Notes:Data was collected between 2002 and 2011.

These models, called value-added models, have been shown to replicate the same results as experiments and quasi-experiments inseveral recent projects(see for example,Chetty et al. 2014,Deming 2014, Kane et al. 2013 and Andrabi et al. 2013).

Clause 12 of the RTE reserves a proportion of seats in private schools for children from poorer households.

- See Building an outcome-focused approach to elementary education financing in India Government expenditure on elementary education in India is designed to promote a system that is accountable for schooling rather than learning. In this article, Yamini Aiyar, Director of the Accountability Initiative at the Centre for Policy Research, proposes a novel approach to governing public financing of elementary education that would give more flexibility to states over planning and budgeting, and incentivise them to work towards learning goals. It is a well-recognised truth that the current institutional framework for delivering elementary education in India is designed, incentivised and thus accountable for the provision of schooling inputs rather than improving learning outcomes (see, for instance,Prichett 2014, Aiyar 2013,Muralidharan 2013,Walton and Mukherji 2013). Yet, even as discussions around the New Education Policy consider the different approaches needed to improve learning outcomes in Indias elementary schools, the issue of institutional reforms has received scant attention.The approach to financing elementary education programmes is of particular relevance here. Financing gains significance not so much from the perspective of adequacy (although public debate has largely been preoccupied with the issue of how little India spends on elementary education), but rather due to the role that financing mechanisms play in shaping the incentive structure that governs administrative behaviour. As Accountability InitiativesPAISA(Planning, Allocations and Expenditures, Institutions: Studies in Accountability) surveys1highlight the current financing architecture of elementary education clearly favours a rigid, one-size-fit-all system that is aligned to achieving the goal of school inputs provision rather than being responsive to learning needs.

Understanding the current financing architecture of elementary education Let us first understand the problem. Elementary education programmes in India are financed both by the Centre and state governments. The bulk of the share of state government expenditure on elementary education is on payment of teacher wages. For example, in states like Rajasthan, teacher wages account for over 90% of the state budget (Aiyar et al. 2015).Consequently, the central government - through its flagship programme for achieving universalisation of elementary education, theSarva Shiksha Abhiyan(SSA) - finances the bulk of non-wage related expenditure. In recent years, central government financing has increased by over nine-fold, making it an important player in shaping state-specific education policy. In poorer states like Rajasthan, Madhya Pradesh and Bihar, SSA accounts for between 40-50% of the total state budget (Aiyar et al. 2015).In principle, SSA is supposed to be a bottom-up scheme, responsive to school needs. States are expected to plan, based on a process that begins at the school level through the creation of school development plans. These plans are then aggregated at the district level, which in turn provide the foundation for state plans. Annual budgets are approved through a process of negotiation between the state and central government. The financing structure however, promotes just the opposite. School committees charged with planning have expenditure discretion over less than 1% of the elementary education budget. This is one important reason why school development plans are almost never made.The same pattern is repeated at the state level. State governments are rarely given a budget envelope and the final approved budget bears little resemblance to what states had initially demanded in their annual plans submitted to the Ministry of Human Resource Development (MHRD). In some years the gap between proposed and approved budgets can be as large as 50%. Further, in the process of negotiating budget cuts, central government priorities inevitably take precedence. This is evident in a close reading of the Annual Planning and Budget Meeting minutes, which document many instances where state-specific proposals are often rejected if they do not fit within the central governments prescribed framework. This pattern is repeated at the district level. As a consequence, states, districts and schools have no incentive to measure, assess and articulate their learning needs and to link budget requirements to these needs. Planning is thus a mechanical exercise and budget allocations often have little relevance to school needs. It should be no surprise then that precious resources allocated to elementary education are often spent whitewashing school walls rather than on improving teaching-learning processes!

Any effort to incentivise learning is further compromised by the fact that all plans and budgets are made using DISE (District Information System for Education) data. While data-based planning is critical to ensuring that plans are linked to needs, DISE does not have a single indicator on learning. This coupled with the fact that states and districts have few, if any, incentives to make need-focused plans, ensure that annual plans and associated budgets are no more than a mechanical calculation of costs linked to school infrastructure needs as recorded in the DISE database. As many district officers interviewed during the PAISA surveys have often described, the annual plan process is no more than an exercise in creating an excel sheet, photocopying pages and finally, spiral-binding them!

A novel outcome-based approach to financing The good news is that two, seemingly unrelated recent policy changes, afford the government a unique opportunity to address these failings. The first is the effort to undo the current, central government-led, one-size-fit-all model of financing by shifting the locus of social sector spending to state governments as proposed in the 14th Finance Commission. The second is the countrywide effort initiated by the MHRD to measure learning progress by financing state-level learning achievement surveys (SLA).For the moment, the governments attempts to implement these two policy changes lack imagination. The debate around the 14th Finance Commission recommendations remains limited to a few tweaks to centrally-sponsored schemes to induce some degree of flexibility and Centre-state negotiations over the quantum of financial contribution2. And the SLAs are being implemented poorly as state governments grapple with constraints of low capacity, limited technical knowhow and little understanding of how to use the data collected through the SLAs.However, if the government choses to use these two policy shifts imaginatively, there is room to significantly alter the institutional architecture for elementary education.Accountability Initiatives researchproposes an alternative financing mechanism that leverages these two opportunities replace the SSA financing model with a three-window financing model that incentivises states to build long-term, learning focused plans on the one hand and rewards performance on the other.

The first window would be an annual grant for states to meet their basic infrastructure needs. Much of this has been prescribed by the RTE and most states in the country are still struggling to meet these requirements. For the moment, financing for the RTE is based on annual plans made by state line departments and approved by MHRD. Rather than spending energy on the same exercise every year (the entire state education department spends at least 2-3 months a year making, at times faking, annual plans and budget estimates) state governments should come up with a three-year budget estimation which can be funded annually by the centre. This will introduce some level of predictability in the current planning system as states will have a ballpark amount of money that they can expect from the centre. Based on Accountability Initiatives estimations of current expenditure, this window should account for no more than 50% of the current annual SSA budget. This funding window will address commonly expressed concerns of equity in financing among states and ensure that poorer states are compensated.In keeping with the 14th Finance Commissions principles of greater state flexibility over planning and budgeting, the second window should be an untied learning grant given to the states for a 3-5 year period, based on a long-term leaning strategy which should be linked to clearly defined learning targets. Since this is an untied grant, the Centre will no longer need to spend time playing headmaster determining line-item wise expenditure for state governments. Rather, it can focus on providing technical support and guidance to states by undertaking assessments and facilitating knowledge sharing across state governments.

Finally, the third window could link the MHRDs effort to undertake learning assessments with state plans and budgets by offering a performance-based, financial reward to states against set targets. Not only will this give much needed teeth to the SLA process, it also has the potential of creating competition amongst states, and over time building greater transparency and public debate on learning levels in Indias schools.

Of course, there are limitations to such an approach. Decentralisation of funds to the state government is only one in a long marathon of steps that need to be taken to enable a learning-focused approach to delivering elementary education. Moreover, there is a risk of state governments gaming the system as they compete with each other to race to the top. But given the extent to which the input-focused accountability is entrenched in the everyday practices of the education system in India, inducing performance-based accountability through financing may well result in much needed long-term changes in the culture of accountability and institutional organisation. At any rate, it will serve to bring the issue of financing, incentives and institutional reforms to the centre of the debate on education. This is critical to building an appropriate education policy for India and must become part of the debate on the New Education Policy.

Notes:PAISA is the countrys largest expenditure tracking survey for elementary education undertaken by Accountability Initiative. The PAISA surveys track plans, budgets and fund flows from the Government of India down to schools through a national survey implemented in partnership with ASER (Annual Status of Education Report) Centre as well as a series of in-depth district focus studies. Survey reports are available atwww.accountabilityindia.in.

The major change proposed by the 14th Finance Commission in SSA is a shift in the state-center fund share from 75:35 to 60:40. Financial Literacy: Need of the hourFinancial Inclusion is the buzz word today. There are several ways in which power centre in Delhi and the regulators are trying to achieve this goal. Industry is also playing its role in achieving the mission. While there are regulatory and business issues in attaining this objective, financial awareness is a critical element in meeting this goal, that needs serious attention. When we talk of inclusion, we are talking of those who are currently not even included in the system but what about the small percentage which does have a pie in financial savings. Do they also sufficiently understand the appropriate ways to save, invest, insure and financially secure their future? From what we observe around us and the number of issues that keep arising, the answer is a clear 'No'.While some of us may be aware of the need to invest, it is "what and where", which becomes a road block. Awareness on need to save and insure should start early in Life. How do we do this? Most importantly financial literacy should begin at school stage so that kids are aware of this important concept at an early age which can help them influence their families on importance of savings and insurance as also enable them to start saving and insuring at a much younger age. Just as we learn about basic concepts of science, math, history, language et al. at school, similarly financial awareness and education should be made a part of school curriculum.

It is important to understand the concept of financial literacy and its appropriate components. Financial literacy as defined by Wikipedia refers to the knowledge required for managing personal finance. It encompasses an understanding of how to use credit responsibly, manage money, minimize financial risks and derive long-term benefits of savings. The methodology of imparting this message should be effective and interesting enough to draw the attention of the child to this complex but important aspect of life. It should be taught in a manner that it becomes a part of our culture. They should be encouraged to have piggy bank for small savings and be also able to appreciate the miracle of compounding. The child in school must also learn that his parents need to save to maintain a certain standard of living in their old age and provide for appropriate level of education for their kids, have to be appropriately insured to protect their lives from any uncertainty, have health insurance cover to meet the medical expenses in case of contingency, and need to stay debt free. The elements of the curriculum should therefore be such that help educate on following issues; The importance of safeguarding the money. Planning for retirement. To understand complex financial products, which may offer high rewards, but may be associated with high risks. To invest wisely, so as to maximize earnings and minimize risk exposure. How does financial literacy help?

Indian women bridging gender gap in financial literacy: MasterCard MUMBAI: Whilepeople in mature markets may prove to be better financial planners overall, it is women in emerging markets who remain dominant when it comes to basic money management, aMasterCardsurvey has found. In terms of overall financial literacy, Taiwan and New Zealand tied for first place with a score of 73 index points each. On the other hand, China and India were ranked the lowest in the basicmoney managementindex scoring 55 index points each. Women registered slightly better scores than men in Asia/Pacific's emerging markets, noted the third edition of thefinancial literacysurvey."It is encouraging to see that women are at par with men when it comes to financial literacy, but there is still a lot of work to be done to improve levels of financial literacy across the board," said TV Seshadri, division president, South Asia, MasterCard.The respondents were asked questions on three aspects of financial literacy - basic money management skills, investment knowledge and financial planning. The level of basic money management skills were sought to be determined in terms of budgeting, savings, and responsibility of credit usage. The study, conducted between April 24 and June 10, 2012, posed questions to 6,904 respondents, aged between 18 to 64 years across 14 Asia/Pacific countries.

India lags behind China in financial literacy; ranks 20th in Asia Pacific Middle Eastern region (India with a score of 60 points) NEW DELHI: India ranks 20th in financial literacy, four spots behind China, in the Asia Pacific Middle Eastern region, says a survey. India with a score of 60 points occupies the 20th slot in theMasterCard Worldwide Financial Literacy Indexfor the first half of 2012, it said.

However, China was ranked 16th with a score of 64 points on the index.Interestingly, Indian women are closing the gender gap on financial literacy as both males and females in the country scored 60 points each on this front. "The index has provided fresh insights into the aptitude and knowledge of managing finances for women in India. It is encouraging to see that women are at par with men when it comes to financial literacy, but there is still a lot of work to be done to improve levels of financial literacy across the board," MasterCard Division President (South Asia) TV Seshadri said.The survey considered three aspects of financial literacy, including the basic money management skills, investment knowledge and financial planning to determine in terms of budgeting, savings, and responsibility of credit usage.

The survey was conducted among nearly 700 people from 25 countries in Asia Pacific and Middle East region between April and June 2012. India got 55 points each in investment skill and basic money management and scored well 72 points when it comes to financial planning. In terms of overall financial literacy, Taiwan and New Zealand tied for first place with a score of 73 index points each. It was closely followed by Hong Kong, Australia and Singapore, with a score of 71 index points. However, women outperformed men in terms of financial literacy in countries such as the Philippines, Vietnam and Malaysia.

India ranked lowest in basic money management skills: MasterCard NEW DELHI: India has been ranked lowest in basic money management skills among Asia-Pacific countries, according to MasterCard's latest Index of Financial Literacy. India with 59 index points was ranked at the 15th place among the 16 countries surveyed ahead of Japan which was at the bottom with 57 index points.In overall financial literacy, New Zealand continued to rank number one with a score of 74 index points, ahead of Singapore (72 index points) and Taiwan (71 index points).

"Even though India's overall index is low, it is heartening that the country has showed improvement on the parameter of financial planning," Ari Sarker,MasterCardSouth Asia Division President, said.

Sarkar further said: "Overall, however, the index highlights clear gaps in the financial literacy space and the need to inculcate better budgeting, savings and responsible credit habits."

The survey was conducted between April 2013 and May 2013 with 7,756 respondents aged between 18 and 64 in 16 Asia- Pacific countries. The survey was conducted on three aspects of financial literacy, including consumers' basic money management skills, investment knowledge and financial planning.

In terms of basic money management, India has slipped five index points lower as compared to last year. India scored 50 index points, down from 55 index points in the 2012 H1 survey. New Zealand retained its top ranking in basic money management with the index at 77 points.

Myanmar ranked top in terms of financial planning with the highest index score of 88 index points, up 2 index points from 2012 H2, which involves savings and planning for the unexpected and retirement.

India also showed notable improvements from 72 index points in 2012 H1 to 76 index points in the current wave of the survey. However, it is still among the bottom 5 in the Asia-Pacific region.

In terms of investment knowledge, Asia-Pacific's overall index score dropped marginally from 59 index points in the previous survey to 58 index points.

China topped the ranking with a score of 68 index points, up three points from the previous survey. India showed a slight improvement with a score of 57 index points compared to 55 index points in the previous survey.

Project: Financial Literacy Tools for Low-Income Americans with Limited English Proficiency

Background Poor Americans live on such razor-thin margins that they need to avoid a $39 credit card late fee that effectively raids their savings budget. In collaboration with the nonprofit organization Doorways to Dreams Fund (D2D), the research team is developing and evaluating "financial entertainment" designed to improve the financial literacy of the working poor. Casual video games that teach a discrete lessonand forgo the the long-term commitment and special skills required by traditional video gameshave great potential because they facilitate repetitive engagement with lessons, create a "performative" learning environment, and and are very popular among women. These engaging new products can be played on everything from mobile phones to personal computers, and are more likely to encourage saving among younger, lower-income, and new workers than traditional financial education.

Overview As part of the new Financial Literacy Center established in 2009 with support from the Social Security Administration, D2D developed two games, described above, which were released in November 2010. In the next phase of this project, with support from the Financial Literacy Center, D2D will leverage these two games to reach minority adults with limited English proficiency.

This project is focused on meeting the cultural and linguistic needs of Spanish-speaking Hispanic audiences through the use of financial literacy video games. Such games hold tremendous promise as a way to attract financially vulnerable Americans to the financial education they need, and are generally well suited to adaptation for more specific audiences, such as a Spanish-speaking Hispanics.

Building on Year 1 work and leveraging the two games it created, this project is testing its theory that a tailored approach to financial education content and delivery can generate higher take up (and, potentially, impact) for a low-income Spanish-speaking, Hispanic audience. We will count how many people visit and use the game sites to learn about the game players themselves and track players progress over time. We capture anonymous player data through voluntary site registration, voluntary surveys, thoughtfully designed in-game questions that do not interrupt game play, and an array of web site metrics. We will also conduct six small sample formal testing sessions to assess pre- and post-play levels of knowledge and self-confidence.

Using Video Games to Teach Financial Literacy Taking a Bite Out of Debt and Spending For low-income adults, building retirement savings can seem completely out of reach, given pressing needs to pay down debt and manage daily expenses. InBite Clubwhich was inspired by Diner Dash, one of the most popular casual games of all timeplayers manage a "day club" for vampires. In the course of the game, players experience the familiar tension between servicing debt, spending money, and saving for the future. By featuring vampires, who live forever, the game highlights the impact of long-term savings over a 45-year span in a 15-round game.

The game aims to instill three learning objectives:

Save for retirement.Players' characters long to move back to the No-Sun Belt for retirement, but because vampires are immortal, they must save a substantial amount of money to finance their retirement dreams.

Pay down debt.Players start with credit card debt from the Werewolf Bank, which was used to start the club. Before they retire, they must pay off student loans from their university business classes at low annual percentage rates.

Manage current consumption.The club must be managed effectively to continue to satisfy consumers. Players can purchase various upgrades, some of which are valuable (needs) and some of which are merely aesthetic (desires). Rooting Out the Killer Bunnies

For low-income adults, many poor financial decisions result from a failure to appreciate how quickly debt can accumulate, how important it is to build a habit of saving, and how the misuse of debt will sabotage efforts to build savings.Farm Blitz, which was inspired by two extremely popular casual video gamesBejeweled and FarmVillehas players take on the role of farmers. As the game unfolds, players experience firsthand how quickly compounding debtfrom high-interest credit cards and pay-day loans, for examplecan make it impossible for saving habits to take root. By lining up a row of three identical crops, players cause the crops to be "harvested," at which point earnings from the harvest are placed in a cash account. But just as farmers have to wait until the end of the growing season to get paid, players do not have access to their cash accounts until the end of a round of play. If they want to spend money during a harvest, they must borrow it. Like Bite Club, Farm Blitz is designed to instill several lessons, particularly the lesson that high-interest debt undermines saving:

Minimize high-interest, short-term debt.Rabbits, with their reputation for rapid reproduction, represent forms of high-interest debt. Like short-term debt products for low-income adults, rabbit debt grows as a result of a cascade of events that mirror real life. Because the interest rate for the rabbits is high, the more rabbits the players introduce to their farms, the more quickly they reproduce. Just as high-interest debt destroys financial reserves, rabbits consume the farm's crops before they can be harvested.

Maximize low-interest, long-term savings.At the end of a round, players can take some of the cash they've earned through harvesting crops and save it by purchasing a tree for their farm. Like a savings account, trees grow in value through compound interest with a relatively low rate. Like a certificate of deposit (CD) or a U.S. savings bond, trees are purchased in dollar denominations and redeemed at their value plus the interest earned.

Understand compounding interest.Both rabbits and trees grow at compounded rates. Just like credit cards and savings accounts, rabbit debt grows at a much higher rate than tree savings. Testing Effectiveness Both games were developed for and with low-income adults. At three key development milestones (first playable, alpha, and beta) for each game, D2D convened testing groups, with participants recruited through a local community-based human service agency in Boston. The six groups consisted of low-income, minority females, 18 to 35 years old, with diverse ethnic backgrounds. The testing groups were asked to play the current version of the game, provide feedback throughout play, and contribute to small focus groups after play concluded. At the first stage, the qualitative feedback helped refine the learning objectives of the games to ensure that the approach and material engaged the intended audience. At the alpha and beta testing sessions, it was difficult to get the testers to stop playingsome even returned to play the game after the testing session was over. When they took an informal survey of their knowledge and skills, preliminary results showed promise. In the future, the games will undergo more rigorous evaluation as funding allows.Financial literacy programs help low-income familiesAt first, John Taylor, education coordinator for Chicago Commons Employment Training Center, had doubts about the idea of partnering with a local bank for a financial education program. The Center's students are primarily women who are transitioning from welfare to the work force most of them have not had previous relationships with financial institutions. Once the program with LaSalle Bank was underway, however, he witnessed some exciting transformations."This program proved to be a very valuable experience for the students and for me. There is a whole population of people out there who have never interfaced with banks and who have no experience with saving or creating a budget. This program helped the students, whose connection to money was based on spending or making sure not to accumulate too much to avoid welfare penalties, to get money to work for them," Taylor recalls. Eighty-eight percent of the graduates of Chicago Commons and LaSalle's partnership opened savings accounts.

A Complex Financial WorldChicago Commons and LaSalle's partnership was initiated by the Chicago CRA Coalition, a group convened by Woodstock Institute, a 27-year-old nonprofit that does research and advocacy on community reinvestment. In a recent study of financial literacy, Woodstock found that the financial life of the typical American family has become increasingly complex. New products and technologies are fundamentally changing the ways we relate to money. The avalanche of credit card and home equity solicitations that families receive through the mail is just one example of the significant increase in the marketing of financial products. At the same time, the financial world around us is consolidating and restructuring at a breathtaking pace. Financial modernization legislation recently passed by Congress allows banks, insurance companies, and securities firms to merge with and acquire one another for the first time since the Great Depression, dramatically altering most people's experience of financial services.

For every basic need food, shelter, medical care, education, and retirement financial planning has become not just a convenience but an essential survival tool. At the same time, responsibility for financial well-being is increasingly being placed on the shoulders of individuals. Welfare reform has moved millions from government assistance to the ranks of the working poor or permanent job-seekers. Employment-based contribution plans have begun to replace defined benefit programs as the basis for retirement savings, while the future of Social Security has become unclear.

Conservative estimates put the number of "unbanked" households at 10 percent of the U.S. population, or over 12 million people. The poor, young people, seniors, immigrants and minorities are disproportionately represented in the ranks of the unbanked. Families that are unbanked usually pay more for basic financial services, do not have the security of an insured deposit account, and have trouble building a credit history that would enable them to rent an apartment, get a job, or buy a car.

"Financial illiteracy" can compound these problems. Without an appreciation of money concepts and an understanding of financial options, people are likely to pay more than they have to for financial services, fall into debt, damage their credit records, over-invest in life insurance, or declare bankruptcy. Poor financial choices harm both individuals and communities. Families become more vulnerable to sudden economic shocks such as health emergencies or unexpected job loss. Decreased family stability, increased foreclosure risks, and disinvestment in homes and local businesses challenge already disadvantaged lower-income communities. These problems are exacerbated in certain communities by the absence of any truly affordable financial options to choose from.

Financial Education HelpsThe good news is there is evidence that financial education can improve financial literacy and, even more importantly, change financial behavior for the better. Financial literacy programs can help families save and build assets and, if done properly and in partnership with financial institutions, can be a direct path to helping families become banked. In fact, financial education is a necessary though not sufficient condition for reducing poverty.

Although many major institutions teach personal finance, there is an enormous gap between the amount of training needed and the amount provided. Many states do not have consumer education mandates for schools, and there is a growing trend to "de-mandate" existing requirements. The Cooperative Extension Service and nonprofit consumer credit counseling agencies provide financial literacy training, but their resources and audiences are limited. Employer-based programs are very limited in scope. Finally, large financial institutions provide little financial literacy training, especially for low- and moderate-income people. In fact, institutions with the least resources, such as community development credit unions, often far outshine large, multi-state banks in this area.

This is where the experience of the Chicago CRA Coalition and the role of community groups comes in. Woodstock staff and members of the Coalition have partnered several major local banks with community groups with the goal of seeing more families using traditional financial institutions such as banks and credit unions rather than relying on high-cost check cashers.

Banks have an obligation under the Community Reinvestment Act (CRA) to provide loans, investments and services in all parts of their service areas, including low-income neighborhoods. Community organizations can use CRA as well as the positive experiences that they or other groups have had working with different financial institutions to encourage banks to work with them on financial literacy programs.

Sometimes financial literacy can be a part of a larger campaign to increase lower-income families' access to basic financial services. For example, the CRA agreement that the Chicago CRA Coalition negotiated with First Chicago NBD/Bank One upon the merger of the banks in 1998 called for the bank to do a feasibility study of a pilot program for lifeline bank accounts. Woodstock staff and members of the Services Task Force of the Coalition met with bank staff on a regular basis for six months to develop account features, create marketing strategies and implement financial literacy programs. The resulting "Alternative Banking Program," which started in three low- to moderate-income Chicago neighborhoods, has since expanded to six neighborhoods and has resulted in over 1,500 checking and savings accounts, the vast majority of which belong to the previously unbanked. The Coalition continues to meet with Bank One to monitor and evaluate the pilot, which will hopefully be significantly expanded.

The Role of PartnersThese types of partnerships work well because both parties bring different areas of expertise to the table. The principal strengths of community groups in offering financial literacy training are their keen understanding of the specific needs of their constituents and their ability to tailor programs to fit those needs. Without partnerships with community groups, many banks are not experienced in dealing with the unbanked population. The CRA Coalition works with branch managers and bank staff from community reinvestment, compliance, retail, risk, and marketing departments to structure accessible trainings, and encourages them to create new low-cost/low-fee products. This learning process can be time-intensive, but is well worth the effort.

Banks, on the other hand, have resources money, time and staff that community groups often lack. They can also provide a specific and vital incentive by offering bank accounts to families that previously relied on high-cost check cashers for basic financial services.

That said, nonprofit agencies are increasingly structuring their own financial literacy curricula and courses. A wide variety of social service and community institutions such as homeless shelters, immigrant service organizations, and legal assistance offices are acutely aware that financial problems subvert important goals such as personal development, health, family life, and community stability. Although financial literacy is not their primary mission, these types of organizations are increasingly integrating personal finance education into their programs. Many groups find this integrative approach effective, since the training becomes a part of a program that already has a "captive audience," such as an English as a Second Language class or a job training program.

Options are the KeyThe importance of financial literacy programs can perhaps best be illustrated by the disastrous impacts of the lack of financial options on low-income people. John Taylor of Chicago Commons remembers the plight of one of Chicago Commons' students who missed the last day of class when the women opened savings accounts. She was in an unstable situation at home, and the father of her child removed all of her savings from under her mattress, leaving her with nothing. "She said that she just really wished she had opened that account," says Taylor. "I told her there would be another chance, that I would be sure to help her take care of it right away. This has definitely been a learning experience for all of us."

The Empowerment Zone Initiative is becoming a model program for community revitalization. Will these programs lead to real community empowerment or will they become just a collection of tax incentives for businesses? The initiative's experience to date offers clues and warnings.

Over the last several decades, the federal government has launched numerous programs aimed at "saving America's inner cities." Model Cities, CAP Agencies, Urban Renewal, VISTA and others have focused primarily on housing and social services. All have shown limited success, and are often pointed to as examples of the dangers of addressing such intricate challenges with such huge programs.

The latest effort in this quest The Empowerment Zone and Enterprise Community Initiative (EZ/EC), administered by HUD (and USDA in rural areas) focuses on economic development, primarily in the form of tax incentives to businesses willing to work in and with local governments and residents of distressed communities. Out of hundreds of applicants, 137 communities have been chosen in two rounds of funding (1994 and 1998) to share in more than $1.5 billion over 10 years. Urban Empowerment Zones received a total of $100 million each, while rural Zones chosen in the first round got $40 million and those chosen in the second round got $20 million. Enterprise Communities are promised $3 million each.

The funds are accompanied by more than $2.5 billion in tax incentives to participating businesses. A business in an EZ/EC hiring a resident who lives within the same EZ/EC can deduct up to $3,000 from their taxes, for example. Tax-exempt bond financing is also available, and the federal dollars have already helped communities leverage another $10 billion in local and private funds, says Dennis Kane, HUD's EZ/EC program coordinator.

Beyond the funds, Kane says, the program is unique among federal efforts to find solutions for disinvested communities because of its effort to encourage collaboration among local agencies, participation from residents, and "strategic visions for change." For a site to receive EZ/EC money, all those with a stake in the targeted communities must play a role in the effort, and the proposed plan must demonstrate that the participants have committed to work together toward long-term sustainable solutions.

Successes and StrugglesRelatively little has been written about the EZ/EC program in the five years since its launch, likely due to the complexity of the program, and because no two sites are similar enough to lend the nationwide effort to a simple overall assessment (though a large-scale, HUD-funded evaluation is due early in 2001). Even the EZ/EC section of HUD's own usually excellent website was for a long while replete with out of date information and faulty links. What press coverage there has been has tended to be local and focused on the particulars of individual sites' performance and operation.

An investigation by theCleveland Plain Dealerin September 1999 found that city's Empowerment Zone to be falling quite short of the promise many thought it held. Barely one-quarter of the resources allocated over five years had been spent, turnover among initiative staff was high, oversight was limited, and management which was supposed to be largely in the hands of a Citizens Advisory Board was gradually being taken over by City Hall.

But the report also found that the $32 million that had been spent was expected to create 1,063 jobs, and that an additional 1,100 people went through training and went on to find work.

A March 1999 report by HUD's Inspector General found that HUD was not adequately assessing performance of the Zones, nor making an effort to verify the accuracy of the performance reports submitted by the sites themselves. Similar investigations of individual EZ/EC sites in recent years have yielded reports citing examples of funds being misspent, funds spent outside the boundaries of designated areas, and results being misreported.

But such critiques are to be expected in an initiative the size and complexity of EZ/EC, says Kane. What's most important is that around the country communities are developing strategies at the grassroots level, and thousands of people are finding jobs as a result. "Every Zone has had successes and failures," says Kane. "This is really an experiment in trying to revitalize communities that have been declining for decades." The plans and processes need time to mature and develop before any real determination of success or failure is made, he adds, particularly because of the rigorous citizen participation requirements, which often work at odds with a push for rapid results.

Creating JobsEvery one of the EZ/EC sites has created or retained jobs, says Kane. While there's no total number for how many jobs have been created since the program begin, he says the initiative can lay claim to putting "tens of thousands" of people to work, citing 3,000 new jobs in Baltimore, and 2,000 in New York City as examples.

Reporting and tracking such figures are challenging, says Kane, since each site's EZ/EC plan is part of a larger strategy in its community, so it's difficult to say exactly which jobs are attributable to which programs. The nature of the economic development work done by each site also makes it hard to track success unif