Financial literacy is an essential tool for achieving monetary security and cultivating healthy financial habits. As Vikram Kumar elaborates, understanding basic financial principles—such as budgeting, credit scores, debt management, and retirement planning—can significantly enhance an individual’s financial well-being and quality of life. Despite this, only 27% of India’s population is financially literate, highlighting a critical gap in essential knowledge, even though 90% of the population holds a bank account as of FY 2021.
Why India is Lagging Behind
Several factors contribute to India’s lag in financial literacy. Historically, financial literacy has not been a significant focus within families or educational institutions. While the revised National Education Policy (NEP) 2020 acknowledges the importance of financial literacy and the need to address the rapid digitalization of financial services, effective implementation remains a challenge.
Socio-economic disparities further exacerbate this issue. Lower-income households often resort to high-interest loans due to urgent financial needs, perpetuating a cycle of debt and poor financial management. This cycle not only affects the financial stability of these households but also negatively impacts the younger generations, who inherit misconceptions about financial concepts.
Empowering Women Through Financial Literacy
Financial literacy is a powerful tool for empowering women, particularly in rural areas. By understanding budget management and making informed financial decisions, women can gain financial independence and invest in income-generating activities. This empowerment helps lift themselves and their families out of poverty.
Despite the widespread availability of modern financial services, including internet banking and UPI payments, and government initiatives such as Pradhan Mantri Jan-Dhan Yojana (PMJDY) and Kisan Credit Cards (KCCs), rural areas still face significant challenges in understanding basic financial concepts.
Current Initiatives and Progress
Recent developments indicate a growing emphasis on financial literacy. According to a TransUnion global study, 57% of Indians monitor their CIBIL report to obtain new credit, and 20% do so to manage their debts better. Additionally, as of February 2024, 1.1 million credit cards have been issued, and online credit card expenditure exceeded Rs 1 lakh crore in March 2024—a 20% increase from the previous year.
These figures suggest that financial literacy is becoming increasingly important, yet continued efforts are needed to ensure widespread and robust financial security.
The Way Forward
To advance financial literacy and achieve greater financial security, several measures can be adopted:
- Targeted Financial Literacy Programs: Programs and workshops specifically designed for women can help foster financial literacy by focusing on budgeting, investments, and practical digital payment skills.
- Integration into School Curricula: Incorporating financial literacy into school curricula can instill healthy financial habits from an early age. Interactive and practical activities within academic settings can promote long-term financial well-being.
- Collaborative Efforts: Successful enhancement of financial literacy requires collaboration between government bodies, private sectors, and non-profits. While the government can establish robust frameworks, the private sector and non-profits can conduct on-ground surveys, workshops, and upskilling programs, reaching even the most remote areas.
Financial literacy remains a crucial life skill. The ongoing initiatives by the government and private entities are making strides, but a concerted effort is essential at all levels to ensure that every individual—regardless of age, gender, or socio-economic status—can effectively manage their finances, confidently navigate investments, and avoid debt pitfalls.
