Chapter: 5

Theoritical Perspective of Financial Literacy

The previous chapter in which concept of Financial Inclusion, has

been discussed, contains selected important definitions of Financial

Inclusion and the fact that financial literacy is an essential element of

those financial services, which are basic to defining Financial Inclusion.

The definitions which have origin in Britain clearly state that financial

literacy is part & parcel of Financial Inclusion, but other definitions have

elements, which cannot be achieved without financial literacy.

Accordingly it will not be wrong to state that this word ‘Financial literacy’

is a concept which is duly recognized as part of the financial world. To

understand this concept there are some issues attached to it, which

need to be classified & discussed first. Literacy as commonly

understood is exposure to reading, writing and Arithmetical abilities in a

person of a certain level that should enable him/her to further pursue

the school / college / university education. Exposed to this literacy, the

person is designated as literate and ready to move into field of

“Education” & then into “Expertise”. However, such a literate person,

when goes to learn music and painting, he will have become literate in

language of music or painting. Actually person learning music or

painting may not even he “Literate” in the sense, we have been

discussing, but can become a big musician or painter. When we talk

about “financial literacy/education”; like music/ painting, Finance is a

language unto itself. One will have to learn it like one learns Music etc.

Formalor ‘Alphabet’ Literacy as above may be of help in accelerated

learning but may not be an absolute essential for becoming financially

literate/educated Actually it is possible that one need not be even formal

“literate”. Even illiterate can be efficiently financially literate, through oral

learning. After all even an illiterate worker recognizes money and lives

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his common life and sometimes even has relationship with Financial

Institution/bank. It is common experience in life that everybody uses

money for transacting economic activities suited to once level in life;

even blind man uses money / coins and they come to recognize by

experience even the denomination. Totally illiterate labourers get

money- bank note / coins and do their purchase correctly by giving

exact value and getting back the change.

They even save, even if it is in their box, some money to be used

in rainy day. They may raise loans for meeting their obligations. They

have to repay it too, quite often more than what they take. Whether

such a person knows or not, but he / she is paying Interest in the form

of “excess payment over original amount”. “A Significant portion of

demand for credit by rural households arises in order to ease the

financial burden of crop failure, illness or death, and health care. In the

case of micro-enterprises, credit may be needed to achieve a

reasonable and visible scale of activities. The rising entrepreneurship

spanning rural, semi urban and urban areas, particularly unrecognized

and informal sector may give rise to large potential demand for credit.

The evidence on demand for credit in India suggests those medical and

financial emergencies are the major reasons for household borrowing”.

The participants / borrower in above situation are obviously not

expected to be always formally “Literate” They will be illiterate and yet

they are using very important financial service i.e. credit. The basic

rudimentary inherent Knowledge/ instinct to protect their own interest,

while availing credit from whatever sources – formal (i.e. financial

institutions) or informal (i.e. moneylenders / friends / relative), in above

situations shall operate – making them to some extent “financially

literate”. May be a professors of economics, when he goes to a bank

first time, may turn into “Fool” while doing his banking transaction.

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There are many instance where perfectly educated people are

seen taking directions from the gun wielding guard on the bank branch

gate- not as to where branch manager sits but as to whether particular

deposit slip is an appropriate one for their purpose. The guard who may

not even know A.B.C.D., but is experienced enough to tell the gentle

man & lady that fill this and that column / rows and complete the job. In

this situation obviously the professor is financially illiterate, while the

illiterate guard is financially literate. True, the guard will have limitation

due to inability to read & write, while the professor will multiply his

knowledge with the experience gained and surpass the actual level of

financial literacy, gained by guard on the basis of his experience in the

bank as well as an oral transferee of knowledge & information; this will

depend on professor to learn. Hence, it can be conclude that formal

literacy, may expand the possibility of becoming financial literate, much

faster and effectively, it(formal literacy) may not be essential to become

financially literate, which can be done through oral / experimental

means of processing of the information by the mind, (Irrespective of

formal “Literacy”), provided one is willing and there are opportunities

available or provided which are not “Formal literacy” dependent.

Definition of Financial Literacy:

One of the factors identified is “Limited literacy” with particular

reference to “Finance skills in Basic mathematics, business finance

skills as well as general lack of understanding of finance and related

environment have been identified as a constraint, on demand for

financial services. Going by this if a definition in attempted which has

not been exactly done in the literature above the ‘financial literacy’ will

mean “understanding basics of mathematics and business transaction

which are financial in nature.” Corollary of this will be that if financial

literacy exists, it will increase, Demand for financial services and

increase in all the attendant benefits of these.

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“OECD defines financial literacy as a combination of financial

awareness, knowledge skills attitude, and behavior necessary to make

sound financial decisions and ultimately achieve Individual financial

wellbeing.People achieve financial literacy through a process of

financial education”. OECD defines financial education as “the process

by which financial consumers / investors improve their understanding of

financial products, concepts, and risks and, through information,

instruction and/or objective advise, develop the skills and confidence to

become more aware of financial risks and Opportunities to make

informed choices to know where to go for help and to take other

effective action to improve their financial well- being.” Thus O.E.C.D has

reversed the hierarchy of ‘words’. In common understanding Literacy

precedes Education, but in the field of finance, O.E.C.D. targets

Education first to achieve financial Literacy. However, a careful scrutiny

of elements of definition of FINANCIAL education apparently are, initial

steps of financial learning which will lead to a certain level of

awareness, & knowledge, leading to a certain level of skills, when in use

in financial dealings, develop attitudes which result in appropriate

behavior of taking a sound financial decision, with to view of financial

well- being of the individual; and this is FINANCIAL Literacy for

O.E.C.D..

Actually, in our under-standing such achievement or result is the

aim of education in the hierarchy of learning; and the process of

education as defined by O.E.C.D. i.e. understanding financial

products/concepts/risks/, through information; and/or instruction; and/or

advise and to know where to go for help, is the process of literacy in the

hierarchy of learning. We observe that in any learning process the

literacy and education follow each other-one gets literacy and then gets

educated up-to a set level i.e. some certified level. This certified level,

as a package, is Literacy, for some further Education.

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Like a Zebra strip where white and black strips follow each other

and it is not really easy to know for a bye-stander whether white was

painted first or black (which only the painter knows); in the field of

learning ‘the Literacy- Education- Literacy—ad infinitum continues. We,

in India and O.E.C.D. internationally are all bye-standers. In Financial

area what I say Literacy, is education for O.E.C.D.. Thus, no wonder the

words Literacy and Education Fall in the category of ‘Confused Words’

and probably their use interchangeably need not be an academic sin. In

this thesis both the words are being used interchangeably. In the survey

done for this research spanning in 30 district in U.P, in which approx..

150 persons @5 persons from each district were interviewed .The

sample consisted of 2 bankers (designated as officers in their banks),1

lawyer, 1 teacher teaching in commercial stream or accountancy/

business management and 1 person selected randomly, on the street

outside a bank branch.

Even after clarifications asked by respondents being given, and

explanations made, 55 respondents did not know anything about any of

the above. Out of balance 95: 75 respondents settled at the answer that

“literacy” meant “awareness”, while 20 respondents understood it as

part of syllabus taught in management schools/university. 82

respondents differentiated between Literacy and education while 13

made no distinction. Education was considered higher than Literacy.

Only 5 respondents linked it to financial inclusion and hence awareness

about banking services and all these 5 were bank officers who had

exposure to an outreach program done by R.B.I. where Inclusion was

a topic of information. Thus almost 54% respondents settled for

meaning of literacy as ‘awareness’ about any subject in question. (This

is generally supported by review of number of lectures delivered by

R.B.I’s top officials and mentioned in deliberations in seminars/works

shops. Also, tangentially, the definition of financial inclusion, with which

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financial literacy/education is linked, support this .Peculiarity of

impression obtained, post this Survey, was, that very large segment of

the common man did not distinguish between literacy and education

and distinction if any was not mentioned/identified. On the basis of the

above small survey (which had broad geographical area covered in U.P.

i.e. 30/74 district of Uttar Pradesh), it can be treated as one of the

“Findings” which can help in deducing a “definition”, which is an

objective of this study. Before reaching stage of framing a suitable

definition of ‘Financial Literacy and education’, it is appropriate to have

an assessment of thinking of Central Bank of the nation viz. R.B.I.,

which is spearheading the movement of financial inclusion in the

country, at conceptual level.

Dr. K. C. Chakrabarty, Deputy Governor of R.B.I., in his lecture

dated 8th June 2012, described many initiative and progress made in

spread of financial Inclusion. He also refers to financial literacy and said

that “Financial Literacy(F.L.) and Financial Inclusion(F.I.) should go

together” He also informed about formation of a separate monitoring

body for bot –F.L. & F.I. as above , viz. “Financial stability development

council (F.S.O.C.). F.S.O.C. has created a technical group on financial

inclusion and financial literacy , which carries mandate to co-ordinate

efforts of all financial sector Regulators. He also informed that ‘National

Strategy on Financial Education’(N.S.F.E) is also under process

(Education as defined by O.E.C.D.)

The peculiar thing in this approach enunciated by Dr. chakrabarty

,in 2012 as compared to approach adopted immediately after 2005-

2006, monetary policy statement introducing the term “financial

inclusion” in India, is widening the field of Financial Inclusion from

banking alone, to Insurance and Equity / capital Investment sector also

(in 2012). The original approach in 2006 onwards was to focus on

banking services through financial services, as was the trend all over

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the globe with reference to definition of financial Inclusion / Exclusion.

That means basic banking services like Savings / loans / Payments and

Remittance services as well as some basic Insurance products.

Financial literacy was treated as one of such services ‘only’, by original

thinkers, but an essential part of financial Inclusion. Now in 2012, the

Financial Literacy appears to have been recognized as an independent

field of activity compared to financial inclusion and hence it is

sermonized that both should go together. Thus financial literacy is now

an independent area in the mind of R.B.I. , but an essential element for

Financial Inclusion. This conceptual development is result of R.B.I.’s

association with O.E.C.D. since 2010. Yet another point is that as

aforesaid, the ambit of Financial Inclusion and exists by corollary of

Financial Literacy both, is widening to include “entire” financial spectrum

as stated above from the restrictive area of banking alone, to Insurance

& Capital market investments etc., and that is why the need for

coordinating all regulators like I.R.D.A. / S.E.B.I. / P.F.R.D.A. etc. exists,

so that different lines of financial literacy specific to particular sector, are

taken care of.

Analyzing further, it appears that there is shift in understanding

of financial literacy in India and Probably world over due to overriding

role being played now by O.E.C.D.. As already mentioned above the

word literacy has changed to ‘education’ in the language used by

O.E.C.D. and literacy is now goal rather than process. The “Financial

education is the process in lexicon of O.E.C.D. . It becomes important

because in 2012 , Dy governor R.B.I. is telling that there is a ‘National

Strategy on Financial Education’ is being prepared. Impact on this

strategy is not of definitions given by “United Nations” “World Bank”

“Asian Development bank” and Dr. C. Rangarajan committee, where by

financial literacy about savings / loans / payments and remittance as

well as basic insurance product, would have been sufficient , but impact

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is now of O.E.C.D. , which is the effect after the “R.B.I.-O.E.C.D.

workshop on delivering financial literacy” held in march 2010, whereby

the F.I is to be achieved through F.L., which apparently is standing on

its own leg now, rather than being part of set of Financial

Services( F.S.).

Before discussing the important aspects of ‘national strategy ‘ and

some important observations regarding financial literacy at above work-

shop, we can have bird’s eye view of R.B.I. Instructions regarding

bringing financial literacy to masses in India: Reserve Bank of India

(R.B.I.) has asked all lead banks to set up Financial Literacy and

Counselling Centres (F.L.C.Cs.), in their jurisdiction and indicated

activities of the F.L.C.C. are -

Providing financial counselling face to face to interested person

(or through electronic / communication media i.e. e-mail, fax, mobile,

telephone, letter etc.) about

Responsible borrowing

Proactive / early saving

Debt counselling-both preventive and curative (i.e. how not to get

over-indebted and how to come out of it , if someone is in debt.

Indebtedness refers to debt due to formal / informal sector )

Various financial product issued by financial sector.

Advantages of being connected with formal sector.

Debt restructuring for borrowers in distress.

Promoting financial literacy / awareness about banking /

insurance product, financial planning and debt related distress.

On its own, R.B.I. launched “Project Financial Literacy” in 2007

andoutreach Programs In the year 2009, which was R.B.I’s. platinum

jubilee year for completing 75 years of its existence; and purpose of

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these outreach programs was to campaign for increasing financial

literacy directed towards F.I. and awareness about Reserve bank and

its product i.e. currency and coins and its general functions, known as

‘demystifying R.B.I.’. These took the shape of camps organized in

association with one or other banks, especially lead bank of that area,

or on its own accord not only in urban areas but in deep interiors in rural

areas. Information about R.B.I. / its structure and functions, features of

notes issued and distinction from forged notes, used to be common

topics of the area discussed. Besides this, the opportunity was also

utilized for distributing coins and exchanging bad notes with good notes

etc. It was also an opportunity to spread information about banking

ombudsman for grievance redressal of common man, regarding their

complaints. Simultaneous, the bank associated with the camp gave

information about banking facilities including savings A/C etc. Also

some loans were distributed under running schemes of central/state

govt. Since the entire programs was also envisaged as being ICT

(Information and communication technology) based/ oriented even

mobile banking or other methods of door delivery of banking services

through hand held devises, was also displayed and smart cards were

also issued. Actually activation of such card was one of the parameters

adopted to asses impact of such financial inclusion out-reach programs.

Its importance was visible as such out- reach programs were attended/

monitored by Regional in-charges of R.B.I, who had to ensure

presence of some top official from R.B.I central office. Also the

participating banks had to invite their top bosses to attend the programs

along with district and state govt. officials (but experience showed that

state govt./ district officials showed very lukewarm response except

occasional exuberance. As a matter of practice inviting local politicians

was not encouraged but panchayats’ in charges (sarpanches) /block

development officials did participate.

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The methods used for carrying Financial Inclusion messages as

modes of spreading financial literacy were following:

(a) Pamphlets containing specific areas of information e.g. R.B.I,

informed about currency notes and its security features to

distinguish from forged notes. Other banks also followed this

method in some cases.

(b) The most talked about and hyped method was creating cartoon

features in two different series (Raju and Money Kumar both in

English and Hindi ,initially and then extended to 13 Regional

languages) by many offices of the R.B.I. including its training

Institutions. The Titles and topics covered in the concerned

magazine are given in [annex-4]. There was criticism of many kinds

which this effort had to face like who will read?; why waste so much

money? What is the target Audience? Will it be effective? etc. etc.

The most serious of all appeared to challenge its rationale itself.

Basically, it appeared to target the student population. Hence a

small survey was designed to assess popularity of these cartoon

features, for the purposes of this thesis: the description is as

follows:

Notably 63% students (378), did not know about it. When these

were shown to them only 10% (38) of these came forward to take these.

Out of these only 18 students gave positive feed back (received after 15

days), that they learnt some thing. Apparently they partially read these

under instructions from the class teacher and these students were rank

holders in their class.14 students of these 18, were girls. Of balance

222 (37%), who acknowledged having heard and seen these, 150 had

received free during camps and programs held by R.B.I.; while 52 had

only heard about these from parents ( serving in some bank) and 22

had seen one or the other such cartoon feature with one of the friends.

All 22 had browsed through and actually read first 2 pages and last 1

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page. Their search was for some interesting story line or attractive

characters. None of them asked for a copy, though that offer was

specifically made to them. They learnt nothing from the partial reading.

Of 150(25% of sample), who actually got the copies, 30 were from

Lucknow and Kanpur where offices of R.B.I. are located. 40 students

had fully read it-all belonging to urban areas and under some

compulsion/ motivation and not due to inherent interest created per se

in the publication. Most of the motivation came due to some related

event viz. Quiz/ Essay/Debate in which bank/ banking/ RBI was

involved. They positively agreed that some learning was there, but its

retention was only 2 on a scale of 1-10. 35 students belonging to Rural

areas had read it partially only, (mostly not exceeding half the pages

and not in continuation). Their parents did not approve of reading a non

study material in most of the cases. They did not learn anything. 25 had

collected these and forgot about it. The number of non –responsive

students was 50.

Apparently, they have not become popular due to uninteresting

story line and probably unattractive characters.. one of the reasons,

also appear to be their not being available on bookshops and outlets

etc. on station/ bus stand. R.B.I. used to have stalls in melas and

exhibitions but general complaint was that enough nos. were not

available for being taken away by general public. Common feeling was

that these could be more popular if priced but lowly priced and written

by good writers and not like an advertisement. Free distribution takes

away its value, according to many students- (a surprise finding). It can

be concluded thus that while rationale of using this method is not wrong

but effectiveness in creating learning or motivating to the extent that one

goes to bank asking for some banking service, may not be as

expected/desired and improvements in writing/presentation are needed.

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This Practice of holding outreach programs continued even after

2009. Other banks also started innovative methods of delivery of F.L.,

through use of information e- kiosks and mobile vans. In U.P. Canara

Bank was first to launch its mobile van for spreading F.I./F.L. especially

in rural areas. H.C.B.L. Bank-an urban co.-operative bank started its

mobile A.T.M. (Automated Teller Machine), latter on it was used for

purposes doing Financial Inclusion too, along with Financial Literacy

work , within its Jurisdiction. According to R.B.I., Kiosks and mobile

vans etc. have immense potential of spreading information:

“ …The need is to increase the use of information Kiosks to

disseminate information not only about banking products ,but also about

input/output Prices, insurance products and health services. Banks

should come forward to set up such kiosks jointly and share the running

costs amongst them. It may be mentioned that similar model (e-

chaupal) has already been implemented by the private sector for

providing ready information in local language, on weather, market

prices, scientific farm practices and risk management. This model

presently covers more than 31000 villages and could and could be

utilized for promoting Financial Literacy in association with private

agencies”

During the survey, one of the suggestions received in this regard

was that if the use of kiosks is to be increased the R.B.I./ Government/

NABARD can make loans to banks for meeting the initial investment in

such project, at nominal rates.

The other means of delivering messages of Financial Literacy

used by R.B.I.in its outreach programs were:[ besides(a) pamphlets ,

(b)cartoon features

Banners.

News Paper Advertisements/press releases

Films

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Lectures

Quiz

Essay Writing Competition

Skits/street shows/ Nukkad Drama/Puppet Shows/ Stage Shows

Exhibition on ground/ Rails

Media /T.V. coverage of events/ Messages through

Advertsements on electronic media.

Seminars/workshops/Conferences

Dedicated website on Internet

Combination of more than one of above

Other banks used following innovative methods also, (besides e-

kiosks, mobile vans, mobile A.T.M. and methods F.L. used by R.B.I.). -

Small sized leaflets, with glossy appearance having information about

their products/services have been kept in bank premises. Private banks

are quite fond of this.

Similar leaflets are sent to the customers along with letters /

statements required to be sent to them.

The covers of their letters etc. have information about their

products/ services which could be read by any body. Often faces

of celebrities (usually female ones) are shown by its side as if

they use these products /services.

Banks have been putting up traditionally Notice Boards in their

premises containing information about the products/services/

other information of use.

Now big advertisements/ billboards are being used in bank’s

premises /stations/Bus stands/transportation points/ streets/ tree

guards/ electric, telephone etc. poles / coaches of trains/ inside buses/

tourist spots and ferries/ exibitions etc.

Mobile messaging/ Internet advertisements being used as F.L.

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F.L.C.C. centres and RUDSETIs as training centres for

spreading F.L.

Radio/ Cable T.V./ Picture palaces

Here the discussion would be incomplete if two more institutions

with heavy potential of Financial Inclusion as well as becoming powerful

messengers of Financial Literacy/Education,, are not brought into

picture:

The Postal Department of Government of India; and

Group of entities i.e. Micro Finance Institutions (MFI)/NBFCs/

N.G.O.s/ Self Help Groups(S.H.G.)

About Postal Department Paragraph from ‘Report on Currency

and Finance’ can be reproduced, to get an glimpse of their potential.

“Apart from the banking system, the Post Offices in India provide the

services of maintaining Deposits and Remittance.The Indian Post

Service with155516 post offices, at end March, 2005, is most widely

spread post office system in the world. The number of post offices were

more than twice the number of bank branches in the country, with a

large presence in remote areas. A post office in India, on an average,

served 7046 persons, at end March 2005. {it was less than half the

figure of persons served by each bank branch at end March 2005}

Indian Post Office offers various type of Small Savings Schemes and

also provide other banking and financial services. Small Savings

Scheme include deposits of various maturities and Public provident

Funds {as well as National Savings Certificate and Kisan vikas pattra of

fixed maturity.} Other Financial Services include, Money Order,

International remittances, Mutual Fund, and Postal Life Insurance. The

number of Savings bank accounts with Post Offices, which provide

cheque facility, was 60.3 million i.e. 19% of the Savings bank accounts

with banks( about 320 million).The amount of savings deposit per

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account in post offices was around Rs.2500/- at end March,2005 as

compared with around Rs.15000/- with banks. This was because post

offices largely cater to the banking needs of the low income groups”

Noticeably, the Post offices are well known amongst general

public-especially the rural segment and considered more approachable

by common man compared to banks; i.e. more accessible and hence

more competent to include people financially anytime compared to

banks. All this without any formal campaign to either make the

introduction of the Institution (i.e. post office) to the general public or to

canvas for opening the a/c(s).

In the present campaign to achieve F.I., R.B.I. had to di-mystify

itself and tell about its product i.e. currency & coins, while banks had to

canvas for a/c(s). ; and when this process started, the importance of

Financial Literacy/Education came to fore (in 2005-06) ; and almost all

the available modes of traditional and modern communication have

been put to use to make the campaign successful. As against this, Post

offices had already covered the substantial path of financial Inclusion,

bereft of all the resources at the command of the banking system, at

end March2005 itself when the word Financial Inclusion was being put

in cradle of monetary Policy announced for 2005-06. Efficiency and

Effectiveness of results, which F.I. is seeking; favour Postal

Systemmore, than the banking system. In the survey, it was gathered

from the general impression of the rural population that the “Postman”,

who visited them on doorsteps, was considered as one of their own and

what he said, was the only financial information which prevailed in

decision making by the illiterate but perceptive rural people and the post

master was the ultimate friend , philosopher,& guide in the matter

whenever the postman arranged meeting between the two parties .The

Postmaster, though respected “Babuji”, was still a friend more than the

high official of the Post office.

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Documentation and identification requirements are no less in

Postal system, compared to banks. People in Urban areas get irked by

the formalities and alleged red tape of post offices, besides its alleged

shabbiness and pedestrian looks and upkeep; but not the Rural and

poor population nor the documentation/ identification deters them

because the postman is there as friendly neighbor hood, to take care of

all this procedural hurdles. Banks with clean and stylish furniture, often

high class surroundings, much more educated and highly paid

staff/officers ( compared to postal staff), has not been able to acquire

the same acceptability as post offices , with the common man-especially

in rural areas; hence the challenge of F.I/F.L..

Analysis of the situation, indicates towards the fact that the only

differences and material one at that( compared to banks), the post man

interacted with the people at personal level,and in capacity of a trust

worthy person- a Government employee, who had no selfish motive,as

he delivered letters and brought money to the people as a service to

them; and in that circumstance he was face to face while contacting

people. He also did handholding in the post office in transacting their

business, be it a/c opening or operating it or any other matter. It gave

him immence confidence and credibility with people and made him a

very influential vehicle of needed financial Literacy, which people

“Trusted”,although there is a distinct possibility that the postman may

not really be knowing much himself about all postal banking products.

But he made sure that whatever he informed was either correct or if

wrong anywhere it could be corrected in presence of postal authorities

and the potential client, in a manner and in time that no loss was

caused to the customer. That led to Financial Inclusin in post offices,

better than banks.

The level of financial literacy/education was limited to the level of

postman’s level of knowledge/skill of communication and the only mode

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of delivery was personal contact. The Post Office officials gave all

permissible support to the postman to enable him to retain confidence

of people with whom he worked. History shows that at least till 2005,

( when the word Financial Inclusion was born in R.B.I. monetary Policy)

the post office system was doubly successful than formal banking

system without knowing the word Financial Inclusion or financial

Literacy.

Notably, it is observed that both – Post Offices & banks have

same mandate i.e. interact with people at grass root level; for which

both have to establish offices at different places in the country- Far-

Wide-Deep in all kinds of Geography of our nation i.e. “Brick & mortar”

offices /branches. Resources and quality of Human resource available

with banks have been better than Post Offices at any time, yet banks

have been able to reach only half the places, compared to where the

post Offices have reached, and with much less acceptability compared

to Post Offices (Banks are feared only a notch less than Police

Stations , as per one of the surveys conducted by a N.G.O. while Post

Offices are like next door neighbor’s shop). One of the differences

which is prominent,is, that clients have to go to the bank to know the

banker and transact business. In case banker has to visit the clients- it

is for recovery and quite often Revenue official/Police will accompany;

In case of Post Office the post man comes on door step and does

handholding when the client has to go to the Post Office. That personal

touch of the Postman was missing in the banks. In the survey of opinion

about the ”Mobile Unit of Postal Department”i.e.the postman” the

following graphic description emerged in Rural and Urban mind set:

The postman represents the “Sarkar” (Government), yet an

interactive human being, who does Service of delivering Information

(letters)/ money /Parcells and acted as writer of letters for many illiterate

residents in Rural India and posted these after procuring stamps etc. in

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the Post Office. May be the better off people rewarded him occasionally

on festivities, but his Services were not affected due to this, for those

who did not. Such rewards are not treated as bribes, but are not viewed

favourably in urban milieu while it is absolutely fine for Rural populace.

Even the Postal Authorities do not frown on it saying” Don’t Give It”, if

you don’t want it. Make a complaint if there is deficiency in Service

(which is often not, except the apprehension on part of social idealists

for whom any give and take is corruption, which can likely affect the

services due to some motivation. These idealists are mostly in Urban

settings and very few in rural Settings). The post man had a

geographical area ‘as his service area’ and knew almost every address

in his territory. Any resident of his service area could contact him, for

getting help in transacting any business in the post office, with

confidence; and even postal authorities took the postman into

confidence if some resident approached them directly. The people felt

that relationship between postman and them was of pure trust . He will

give appropriate advice after under -standing the needs. If he did not

know himself, he will not hesitate in taking the visitor to the ‘Babuji”- the

Post Master/clerk and heads would be put together to find a solution

within strict rules of the post Office; the Government Audit being

deterrent for all concerned. For common man the officials of the post

office could not be reached very easily yet they were said to be friendly.

Procedures were tough yet surmountable. The credit for this goes to the

Postman. The Postman dressed in a prescribed Dress with his typical

cap, did not give impression of richness nor of high education and

mingled with poverty/ low income scenario of rural environs and he had

his own place in the local milieu. The post man is an invitee in the

socio-religious functions held in his territory- done by Haves and Have-

Nots alike and irrespective of religion. One of the other important

differences, between the banks and post office, is that the staff

shortages in banks is distinctly visible, which is not so in case of Post

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Offices or at-least it was of manageable nature to the extent that every

personnel of post office would not be cribbing about it and this would

not become excuse for any and every kind of deficiency in service or

operation; which is the situation in the banks for last two decades now

and a common employee seems disgruntled and dissatisfied in his

employment. Probably, Post offices had not evolved the principle of

treating Homan resource as “Expenditure”, which when saved increases

the profit. But for the banks which are also business Institutions, profit

matters and by corollary reduction in staff may be an appropriate

strategy. The curious question arises whether with such a pressure on

staff, will the banks be able to achieve ‘Mission Financial Inclusion/And

Financial Literacy/education, which is labour intensive effort. Even Dy.

Gov. of R.B.I. has considered this aspect as an Issue & challenge for

F.I. movement stating that there is ‘ Lack of ownership by banks in

implementation under Financial Inclusion’. These differences between

these two institutions, were probably lost sight of by the Regulator/

Government and banks themselves as the banks expanded into the

Rural India but missed on including People. The Post Offices did not.

Of-course, the situation in Urban India was some what different-

Some sections of people in Urban/Metro areas, termed post Offices

lazy, Bureaucratic procedures ridden, and overstaffed with lowly

educated and non-dynamic slow paced personnel. They demanded

change . These are the people who talk of fast moving economy, heavy

monetary transactions and a high class living standard etc.. For them

Post Offices existed only for delivery of letters,/ cheap but recorded

mode of transporting Parcels, and meeting the legal requirements

where even now Law recognizes only Post Offices as worthy of

Evidence in case of matters related to Communication of information

etc. For common urban milieu, the Small Savings Instruments/

certificates e.g. N.S.Cs/ K.V.Cs/P.P.F/P.L.I. etc. formed the centres of

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attraction, of course not through Post man that much, due to paucity of

time on both sides, but due to publicity and business needs. That is

here the instruments of Financial Literacy and education like Posters/

Newspaper ads. Etc. were found effective to some extent. The

informed people when needed in their own interest, approached

authorities of postal Department directly( bye passing the Post Man)

and did the financial transaction in S.S.I. instruments. Tendency of

opening S/B A/cs was not that much. Use of Notice Board Information

was found very useful and role of postman was done quite often by

Brokers sitting in the post offices . So the personal touch was not dead

altogether. But most powerful stimulus for choosing a postal product

and awareness about it was due to self interest and the enveloping

Financial Literacy followed Financial Inclusion. In the opinion of

Researcher, Financial Literacy/ Education can not have a base if it does

not cater to target’s one or the other need/ curiosity which should relate

to financial matter. This situation ,as described above , appears to be

extant, till 2005, when really the banks were propelled by R.B.I. To

Learn The Word F.I./F.L./F.E.; and R.B.I. started the outreach programs

first selectively by using methods of distribution of coins, notes

exchange programs and demystifying its own image. It was nothing else

but creating an environment for telling the banking Industry to go to door

steps of the customers for better Financial Inclusion-an in thing for the

Post Office system already.Some Learning , it was in the opinion of

researcher that got inspired from the character of the Post Man of the

Past- his door to door service and personal approach. De-mystification

did bring in some level of informality ;while the coins and currency did

cater to personal interests of needy or not so needy, both in Rural as

well as urban areas; all this creating an environment for learning for the

general population about matters- Financial in nature. It was ground for

introducing Financial Literacy/Education.

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The post 2005-06 thinking and General Politico-economic

environment did not leave post office system untouched/ unaffected. It

became conscious of its image and started efforts at creating better

office environment and more modernized functioning. Apparently the

government of the day, between 2006- 2010 gave better pay scales to

its employees on one hand, but asked them to be viable for the

Government, (if not profitable like banks) and efficient functioning and

customer friendly attitude was desirable. Post offices too were

introduced to modern technology and computerization in an effort to

compete with other financial institutions. Internet/ Mobile messages/

better written communication through notice boards and bill boards

within and without Post Office premises was taking care of needs

related to Financial Literacy/education as far as Small Savings products

were concerned. In urban setting this impact was truly visible, while

even post offices in rural areas too have felt the wind of change. But the

change has two downside effects for the Post Office system as came

out in the survey- The Post man has lost its position further in urban

areas where he has further moved away from people due to Technology

introduction ; and in rural areas also he has lost his position in the eyes

of literate sections of rural population, probably due to banks’

experiment of reaching clients’ doorsteps through Banking

correspondent model using smart cards and mobile technology as well

as increasing presence of courier service providers even in rural areas

reducing the dependence on written communication through letters i.e.

the frequency of a postman interacting with people is reducing and

hence the influence too is subsiding. Another Effect is that even Rural

population is becoming nearer to the banks and it is at the cost of Post

Office system.

As far as banks are concerned, Statistics of F.I. figures are on

rise and awareness programs have surely taken up the level of

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acceptance of banks in rural and urban areas both, with the change in

people’s perception about banks in positive direction, which can be said

to be positive impact of f.l./f.e, proving a point that corelation between

f.l./f.e. and f.i. is positive and in india f.i. created ground for success of

f.l./f.e., at the extant level banking-financial- economic-literacy

environment during 2005-06 to 2009-10 time period and it was same for

u.p. too. In 2009-2010 R.B.I. celebrated its platinum jubilee by

observing the year long “Project Financial Literacy”. By the end of it the

F.I. /F.L./F.E. were buzz words in the financial system and there were

atleast apparent efforts on part of banking industry to remain on the

right side of the Regulator and the politico- economic thought process,

despite the problems of ownership of the mission F.I. by them, most

likely due to problems liked with acute shortages staff and officers in all

categories in banking Industry. The other Institutions which have

successfully made poor people’s lives better economically and thus

contributing in the economic growth are Microfinance Institutions (MFIs)

and Self Help Groups (S.H.G.s) running independently or by N.G.O.s.

The most famous example being Grameen Bank of Bangla Desh

founded by Mohamad Younus who was awarded Noble Prize for his

work. These MFIs are : Societies,Trusts,Co-operatives, not for profit

companies and non-banking financial companies registered with R.B.I.,

The MFIs covered almost 8.3million borrowers in 2008, giving a big

push to F.I. on the lending side. The NBFC sector within this group

accounted for about 42.8% and was fasted growing segment in 2008.

These institutions also worked on principles of door service, continuous

training of groups and continuous monitoring with necessary

handholding. In U.P. one of the MFIs viz. margdarshak is doing very

well. Margdarshak Financial Services Limited (MFSL) is a category-B,

non-deposit taking NBFC-MFI. Established in 2007 under the aegis of

Margdarshak Development Services, the microfinance activities of

MFSL reach out to about 29848 families with a loan portfolio

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outstanding of 252.08 million as of March 2013. The company has

raised capital in 2 rounds and has 2 institutional investors viz. SIDBI &

Dia Vikas Capital Pvt. Ltd. The company has also availed term loans

from various financial institutions including AndhraBank, Union Bank of

India, SIDBI, Maanaveeya Development and Finance Pvt. Ltd, Dia

Vikas and Ananya Finance etc. Necessary financial Literacy is done

extensively as appropriate for borrowers.

The entire year 2009-10, which was the year of Platinum Jubilee

of R.B.I., was observed as an year of outreach programs where

financial literacy was tried to be imparted by the above mentioned

methods as already discussed above by all the stake holders-R.B.I./

Banks/ State and Central Governments etc. The methods were target

oriented and hence took care of mostly those who were already

financially included or were to become so. The future potential was as

yet not on Radar i.e. Children and student population. R.B.I. made

efforts to get the tenets of financial literacy to be included in syllabus of

the schools following education system of State Board/CBSC/ICSC. In

U. P. it was included in pre high school classes in some text books

prescribed by State Board. However, an extensive experiment was

experimented in Karnataka in May,2009 and is worth noting down as an

indicator of R.B.I.’s role:

In Karnataka also, R.B.I. and State Board entered into an

arrangement. The background to this momentous event was the

decision taken, during the meeting of the Governor with Chief Minister

of Karnataka, on May 14, 2009 to launch a pilot programme on

Financial Literacy in Karnataka in association with the State

Government. The programme envisaged introducing financial literacy in

the curriculum of schools and colleges in the State of Karnataka.

Subsequently, at a high Level meeting between Shri Sudhakar Rao, the

then Chief Secretary, Government of Karnataka and Smt. Usha Thorat,

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Deputy Governor, RBI, it was decided that revision of syllabus and

content of textbooks for classes V, VII, VIII and IX would be carried out

for the academic year 2010- 11. Accordingly, the content for the

proposed curriculum change was developed by RBI and formally

handed over by the Reserve Bank Governor to the Chief Secretary,

Government of Karnataka on September 22, 2009 during the Outreach

Programme organized in Doddabelavangala village in Bengaluru Rural

district. The textbooks incorporating the content provided by RBI have

since been printed and made available by the Government of

Karnataka. Another significant decision taken during the meeting of the

Governor with the Chief Minister of Karnataka on May 14, 2009 was

that steps would be taken to make Financial Literacy part of non-formal

education. As a follow up to this decision, State- wide Quiz competitions

covering the schools, and PU colleges in all the blocks and districts of

the State, were held in association with Government of Karnataka,

SLBC and the Lead Banks. The literature developed by RBI under ‘Raju

and Money Kumar’ series and other material prepared on features of

genuine currency notes, etc. were used for conduct of the Quiz

competitions in both English and Kannada. RBI, Bangalore, printed

around 8.80 lakh booklets for distribution to the targeted

schools/colleges through the Lead District Managers and Deputy

Directors of the Education Department. The block and district level Quiz

competitions culminated in the State Level Quiz Competitions.

On the fringes, to give push to the F.I. drive through use of

technology, accordingly Electronic Benefit Transfer (EBT) Scheme was

also launched the same day by Chief Secretary, Shri S.V. Ranganath.

This was a sequel to Governor’s meeting with senior officials of the

State Government, commercial banks and financial institutions

represented in Karnataka on May 14, 2009, where it was decided that

all issues relating to implementation shall be resolved to facilitate its

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implementation in the State. Accordingly, steps were taken to

implement the scheme as a pilot in Bellary, Chitradurga and Gulbarga

districts under ‘One district-multiple banks’ model for routing payments

through ‘no frills’ accounts, or other bank accounts, under Mahatma

Gandhi Rural Employment Guarantee Programme and Social Security

Pensions schemes. Such account-holders will be issued biometric

smart cards with individual IDs. Later on, the Government of Karnataka

identified three other districts viz. Chamarajanagar, Mandya and

Dharwad for implementation of the scheme under ‘One district- one

bank’ model. This entire initiative is being planned and executed in co-

ordination with the State Government, SLBC and the respective Lead

banks of the above six districts.(Reporting done in March,2010).

In March, 2010 (22nd&23rd March), R.B.I. & O.E.C.D. (organisation

for economic cooperation and development) jointly held a workshop on

financial literacy, in Bangalore (Bengaluru now). It was a high powered

workshop, addressed by Finance Minister, Governor of R.B.I. Dy.

Governors etc. and participants were from India and abroad. The

inferences and impressions valid for the research based on pith and

substance of the discussions /lectures/presentations given in this

workshop, is consolidated below: Established in 1961, OECD is

engaged to help its member countries to achieve sustainable economic

growth and employment and to raise the standard of living in member-

countries while maintaining financial stability – all this in order to

contribute to the development of the world economy. As one of its key

objective, OECD has been working in collaboration with a host of

governmental agencies and central banks across the globe to promote

and impart financial education for creating an embedded protective

guard against potential financial risk. OECD has also established the

International Network on Financial Education (INFE) in mid-2008, which

brings together senior government officials from both OECD member

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countries and non-member economies to discuss issues, new

developments, experiences and programs related to financial education.

The reason, why OECD has so readily agreed, to conduct this joint

workshop with RBI by sharing and sparing their resources is that RBI

wants to adopt the international best practices honed by OECD and

improve upon them for multiplier effect to cover vast multitudes of

unbanked and financially illiterate population. After all, financial

inclusion is a necessary precondition for sustainable and inclusive

growth. Simply speaking, financial literacy refers to knowledge required

for managing personal finance. It does not necessarily refer to formal

education in finance. Instead, it encompasses an understanding of how

to use credit responsibly, manage money and savings, minimise

financial risks and derive long-term benefits of savings.

It is now well known that financial illiteracy afflicts both developing

and developed countries although in different measures. Several

surveys in countries like UK, Australia, etc. have found out that many

people are taking on financial risks without realising or understanding it,

and in fact are very poor managers of money. It is genuinely believed

that the recent financial crisis is largely precipitated by rampant financial

illiteracy or the lack of transparency that financial literacy is supposed to

bring into the model code books of financial service providers. We have

a plethora of instances of mis- selling and customers undertaking

financial contracts without understanding the risk import of such

transactions leading to unforeseen volatility and unsustainable

business. Financial literacy is also a necessary pre-condition for

success in financial inclusion drive. Dimensions of this issue can be

gauged from the recent paper by the Financial Action initiative, a

consortium of researchers. 3 important findings of the paper can be

quoted:

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2.5 billion adults, just over half of world’s adult population of 4.7

billion, do not use formal financial services to save or borrow.

2.2 billion of these unserved adults live in Africa, Asia, Latin

America and the Middle East.

Of the remaining 2.2 billion adults who are financially served, a

little more than 800 million live on less than US$ 5 per day.

With such estimates of the dimensions of the financial exclusion

problem, and the understanding that achieving financial inclusion is not

possible without financial literacy, the promotion of financial literacy

acquires an even greater urgency. Financial literacy can be promoted

by bringing in wider section of public within the institutional literacy

framework. Such institutional initiatives would largely focus on

improving literacy standards. Also, all financial service providers have a

moral responsibility to bring in a fair degree of transparency and

fairness, more so those engaged in selling financial products and

financial counseling and the ethical grid within which they are supposed

to work. This initiative is no less challenging than propagating financial

literacy to the members of the public. Hence, there is no doubt that

financial literacy should be one of the key initiatives in coping with the

ever-expanding horizon of risk. In RBI, there has been started a unique

public interface programme whereby RBI is trying to bridge the gap in

understanding regulatory perspectives of some key policy initiatives.

However, Reserve bank or central banks or bank regulators acting

alone would not be successful in meeting this extraordinary

responsibility in propagating financial literacy and bringing transparency

in dealing with financial services and products. Wider and active

participation of all stakeholders like other financial regulators,

Government – State & Federal both - Financial Service Providers,

Academia and others in civil society is needed in this grand initiative.

Also we require massive global efforts and co- operation for achieving

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tangible results in this area. The OECD has been an intellectual leader

in the field of financial literacy. It has been involved in supporting

research and evaluation in financial literacy and has been proactive in

spreading awareness about the importance of financial education. The

OECD is by far the most valuable repository of knowledge on grass root

experiments in financial literacy. Learning from these international best

practices can certainly help India to “leapfrog” over several stages of the

process. Partnering with OECD is therefore a huge and valuable

learning opportunity for India.

There is virtually no country whose economy has developed and

matured without a corresponding deepening of the financial sector. And

such deepening is possible only when individuals and households are

financially literate and are able to make informed choices about how

they save, borrow and invest. Indeed, it is possible to argue that the

sub prime problem would not have grown to the explosive proportions

that it did if people had been financially more ‘literate’. Beyond the

individual level - and this is equally important - greater financial literacy

can aid a better allocation of resources and thereby raise the longer-

term growth potential of the economy. India clocked average growth of

around nine percent in the period 2004-08 before the global financial

crisis interrupted the growth trajectory. One of the key drivers of this

growth has been the increased savings rate in the economy, which

reached a high of 36 percent of GDP in 2007/08, the year before the

crisis. The increase in savings itself has been a consequence of the

changing demographics and the welcome trend of rise in household

savings. However, nearly half our population still lacks access to

banking and other financial services. If we can redress that and provide

this ‘left behind’ population access to the entire gamut of banking

services, we could raise household and overall domestic savings even

further, and that will fulfill one of the necessary conditions to achieve the

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double-digit growth that we aspire to. To make that happen, we need to

deepen the penetration and expand the coverage of financial services

to all sections of society and to all regions of the country in a

meaningful way, particularly to those at the bottom of the economic

pyramid. Lack of financial awareness and literacy is one of the main

reasons behind lack of access to financial products or failure to use

them even when they are available.

In case F.L./F.E. is likely to increase the growth in economy, as

one side of the coin there is another side of coin too. Absence of

F.L./F.E. can likely cause systemic disasters too.An NCAER and Max

New York Life study shows that in India, around 60 percent of laborers

surveyed indicated that they store cash at home, while borrowing from

moneylenders at high interest rates - a pattern which increases their

financial vulnerability. Presume for a moment that all these people, if

they suddenly and simultaneously take a financially disastrous decision

and come in a crisis, it will not be an individual’s misfortune alone, but a

systemic crash, which could be avoided if they are appropriately and

sufficiently aware about financial facts. Financial literacy and awareness

are thus integral to ensuring financial inclusion. This is not just about

imparting financial knowledge and information; it is also about changing

behaviour. The ultimate goal is to empower people to take actions that

are in their own self-interest. When consumers know of the financial

products available, are able to evaluate the merits and demerits of each

product, are able to negotiate what they want, they will feel empowered

in a very meaningful way. They will know enough to demand

accountability and seek redressal of grievances. This, in turn, will

enhance the integrity and quality of financial markets. One big lesson

which has been learnt in the outreach programmes is that financial

literacy is not just a public good; it is a merit good. What this means is

that by deepening financial literacy, not just individuals and households,

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even the society at large stands to benefit. In this context, It must be

mentioned and credit should go to the OECD for taking a pro- active

initiative in generating awareness about financial education. Sometime

ago, it had done a major International study on financial education titled

'Improving Financial Literacy' encompassing practical guidelines on

good practices in financial education and awareness. These guidelines

promote the role of all the main stakeholders in financial education:

governments, financial institutions, employers, trade unions and

consumer groups. In addition, they also draw a clear distinction

between public information provided by the government and regulatory

authorities, on the one hand, and that supplied by the financial analysts,

on the other. Observably, the level at which the delivery of Financial

Literacy/ Education had started in 2007 with the launching of Project

financial Literacy by R.B.I., Its direction has taken definite form and

focus is becoming financial system oriented, rather than being

individual/entity centered alone, by March 2010, when joint RBI-OECD

workshop has taken place. Clearly, the stage where F.L./F.E. followed

F.I. had been up scaled to the stage where F.L./F.E. & F.I. go side by

side supporting and complementing each other. The efforts to include it

as a course of study in the academic stream at appropriate levels, with

a proper syllabus, evidences are available.

At this juncture, it will be appropriate to see, as to what has been

content of the messages of day today finance, disseminating Financial

Literacy, during 2007-10. RBI in its out reach programs, took the

theme,meant for general public i.e. ‘Know your Bank Notes’. Short films

were shown on security features of high denomination notes,eg Rs,

100/- and Rs.500/-( old and new series). ‘Do not staple notes,’ was also

an Audio visual. A game was also devised to be played on computer

dealing with the same topic. For student population, the comic books

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were brought out in 2 series Money Kumar & Raju series. These are 6

books with following titles

D. Subbarao, Former Governor, Reserve Bank of India; Mr. Onno

Ruhl, Country Director, the World Bank; Ambassador Richard Boucher,

Deputy Secretary General, OECD; delegates from the OECD, the World

Bank and from countries across the world; colleagues from Reserve

Bank of India, other regulatory bodies and agencies involved in

disseminating financial education in India; ladies and gentlemen. It is

my proud privilege to welcome you all to India’s capital city of New

Delhi, a city of rich cultural and historical traditions, on the occasion of

this Regional Conference on Financial Education jointly organized by

RBI, OECD and the World Bank. As you might be aware, this

conference is a part of a series of events organized to disseminate

information about the activities of the Russia/OECD/World Bank Trust

Fund on Financial Literacy and Education. Two other conferences in

this series were held recently in Cartagena and Nairobi. We at the

Reserve Bank of India, are indeed very proud to co-host this landmark

conference, as it brings together all key stakeholders who are central to

India’s crusade for achieving universal financial literacy. We believe this

conference provides an ideal platform, not only for us, but also for

delegates from other jurisdictions in particular, the Asia Pacific Region,

to exchange views and learn from the experiences of peers. We are

also very happy and grateful, to have the World Bank and the OECD as

partners for this conference; two organizations which have made

immense contribution to spreading financial literacy and leveraging the

financial systems to improve the quality of lives of the marginalized

groups across the world.

Over the next three days, the participants can look forward to

stimulating and enriching deliberations involving global experts having

rich and varied practical experiences and learn from their experiences

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of implementation of financial literacy initiatives in different parts of the

world. The conference sessions have been structured with focus on all

the important pieces which constitute the jigsaw of financial education.

For instance, keeping in view the importance of a well-articulated

national level framework for financial education, an interactive panel

discussion on experiences in developing National Strategy documents

for Financial Education, has been planned. Further, in view of the need

for assessing existing financial literacy levels in order to identify priority

areas while rolling out a National level strategy, the conference includes

a session dedicated to use of surveys for evaluating financial literacy

levels and ground level feedback from such measurement exercises.

The conference also seeks to emphasize on certain focus groups such

as the youth and women with separate panel discussions dedicated to

these groups. All sessions have been structured to involve sharing of

experience by implementation experts from across jurisdictions and

would encourage free participation by all delegates, in order to optimize

the learning experience.

Need for Financial Education/Literacy:

Having given a brief outline of the Conference let me briefly touch

upon the theme of the Conference. Over the past few years, particularly

in the aftermath of the global financial crisis, the importance of Financial

Education and Financial Literacy has come to be widely acknowledged.

This recognition has led countries to initiate programmes to disseminate

financial literacy among its citizens. As the OECD’s definition of

financial literacy indicates, it is“a combination of financial awareness,

knowledge, skills, attitude and behaviours necessary to make sound

financial decisions and ultimately achieve individual financial wellbeing.”

I would argue that financial literacy is not only important for financial

well-being of the masses; it is also a sine qua non for the economic

well-being of the nationas a whole. Financial Illiteracy is not limited to

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the poor or to the less developed economies alone, it pervades all

levels of society and economic strata. Only the manifestation of financial

illiteracy varies depending upon the stage of development of the

economy, and within the same country, upon the economic profile of the

individual. I am a firm believer that everyone associated with the

financial system needs to be financially literate. This includes the users

of financial services; the providers of services; and even the policy

makers and the regulators. For countries which successfully roll out

financial education programmes, the benefits are significant: At an

individual level, financial literacy/ education is important because it

helps in building financial capability. It makes people better informed,

educated and more confident, able to take greater control of their

financial affairs and to fully harness the benefits of accessing the formal

financial system. People who understand their financial circumstances

are more likely to make sensible choices and ensure adequate

provision for their future. They are more likely to have an appropriate

level of insurance and reach retirement age with comfortable pension

plans. They won’t pay more interest than they need to when borrowing,

or settle for less than they should when saving. People with basic

financial awareness would understand risk return trade-off and take

better investment decisions, thereby being less vulnerable to frauds and

dubious schemes. Financial education can help reduce levels of debt,

poverty, repossessions, stress, illness and even crime. In sum, financial

education improves the quality of people’s lives and financial affairs and

provides them peace of mind, by instilling in them a sense of

confidence and security about matters of money. From a macro

perspective also, financial literacy/ education has important implications.

Financial Literacy, together with Financial Inclusion and Consumer

Protection form a triad which, collectively, has an important bearing on

Financial Stability. The three legs of the triad have strong inter-linkages,

with each element having a vital bearing on the others. The absence of

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any one would make it difficult to attain the remaining goals. Financial

Literacy aids financial inclusion initiatives as it creates awareness about

the benefits of connecting with the formal financial system and hence,

creates demand for financial products. Financial literacy supports

consumer protection as it helps consumers better understand the

features and risks inherent in financial products, thereby reducing the

risk of mis-selling. It also generates awareness and willingness to

approach the grievance redressal system available, in case of disputes.

At a macroeconomic level, the cost of financial illiteracy is significant

and is manifested through scourges such as unemployment, poverty,

high personal indebtedness and financial exploitation through mis-

selling. It results in avoidable leakages and wastages, which any

resource-scarce country can ill-afford. The savings habit, which can be

inculcated through financial education, can help channelize household

savings into productive activities, thereby supporting economic growth.

The increased demand for financial services, created as an outcome of

financial education efforts, can help bring depth and diversification to

the financial markets.

In India, financial education has been identified as a policy priority

and a massive effort involving the Government, various financial sector

regulators, financial institutions and civil society is underway. The

Financial Stability and Development Council (FSDC), which is chaired

by the Union Finance Minister, is mandated, inter alia to focus on

spread of financial inclusion and financial literacy. Under the aegis of

the FSDC, the draft National Strategy for Financial Education (NSFE)

for India has been prepared. Further, we are focusing on financial

education for school children and are involving various national

curriculum setting bodies in order to seamlessly integrate financial

literacy material into the existing course curriculum, without making it

burdensome for the children. Over the course of this conference, my

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colleagues from the Reserve Bank and other agencies will be

presenting the nuances of India’s push towards universal financial

literacy. We look forward to your views and suggestions on where we

can do it differently, and better. As I mentioned before, Financial

Illiteracy is a global problem and the challenge before us is enormous.It

calls for a collaborative partnership involving all stakeholders and all

countries. While the experiences in individual jurisdictions would vary,

there are important learning points that we can pick up from each

country’s journey. I hope this conference succeeds in valuable sharing

of knowledge and experience among such a wide array of experts from

across the world. I do believe that with our collective efforts towards

universal financial education, individuals and institutions would be

empowered to make informed financial choices and in the process, the

global financial marketplace would become a more stable arena, much

less vulnerable to financial crisis, such as the one we are facing today.

That is the ultimate goal of building Financial Capability in any society!

In March, 2013, another workshop viz. R.B.I.-OECD-World Bank

joint workshop on Financial Education was organised in new Delhi. In

this National Strategy for Financial Education was the main item on

Agenda. It is not Bank centric and appears to take other financial

sectors also on Board. Basically its plan is to have a tiered approach.

Tier 1- to spread awareness about basic Financial products and to link

them to the formal financial system/ sector; Tier 2- to educate the

existing users of financial products and services , to make the informed

choices and tier 3- to ensure Cosumer Protection for all users of

financial products and services. Based on above trilogy of needs, the

Key constituents of the national strategy would be a continuam of

Financial Literacy-financialeducation and consumer protection.

According to National Strategy document:

Key Components Of Financial Literacy:

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Why save?

Why save regularly & consistently?

Why save with banks?

Why borrow from banks?

Why not to borrow from moneylenders?

What is Interest?

How moneylenders charge very high rate of Interest?

Why borrow within limits?

Why borrow for income generating purposes?

Why repay loans?

Why repay loans in time?

Why Invest?

Why Invest regularly?

What is difference between Saving and Investment?

Why will you need pension like regular stream of income

post working life?

Why do you need Insurance?

Why Insure adequately?

What is cheque/draft/NEFT/RTGS ?

Ey components

How to calculate Interest?

Key components of Financial Education are as follows:

Understanding the key financial products, one may need

throughout One’s life-including bank accounts, Insurance,

retirement saving plans etc.

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Understanding Basic financial concepts e.g. compounding

interest present and future value etc.

Developing skills and confidence to be aware of financial

risks and opportunities and to benefit from them.

Making good financial choices about savings/ management

of debt etc.

Key components of consumer protectioesn are as follows:

1. Creation of awareness about consumer protection fora at

District,State,& national Level; and providing quick and easy

access to users of Key components of Financial products and

services to these bodies.

2. Providing quick and easy access to Ombudsmen

Thus, we see that consumer protection i.e. freedom from

exploitation or avoidance of malpractices is an essential function of

Financial Literacy/Education. This is position in March, 2013.

Position in India:

Financial Literacy & Financial inclusion to go together- Financial

Stability Development Council -Mandated to focus on Financial

Inclusion and Financial Literacy. A technical group on Financial

Inclusion and Financial Literacy under aegis of FSDC– Coordinating

the efforts of all Financial Sector Regulators. Financial Literacy Centres

set up in most of districts (650+) Rural bank Branches (35000+) -To

conduct awareness camps.Comprehensive Operational Guidelines for

conduct of camps.- Standardised Financial Literacy Material . Mass

scale awareness- Outreach Visits, Camps, Quiz, Essay Competition,

Role Play, Comic Books, Fairs and Exhibitions etc.

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