Chapter 3

Financial Literacy – Global Experience

1. Background

All individuals share the same goals – economic security for themselves, their families and
future generations. However, the poor, the marginalized and the financially excluded have
fewer resources and opportunities to do so. Most live in high-risk and unpredictable
environments. In this context, managing the little money that they have is vital. Good money
management is critical for meeting day-to-day needs, dealing with life cycle events and
unexpected emergencies, taking advantage of opportunities when they present themselves,
and planning for the future.
Building assets is important for the marginalized because they provide the basis for economic
security. Common ways that the marginalized build assets are through savings, and
investments in land, businesses, and housing. They also build assets by investing in children’s
education, health, and the maintenance of reciprocal social relationships that provide support
in times of need. Good money management is critical to the process of accumulating all kinds
of assets and preserving them. Access to appropriate financial products and services, along
with the financial skills to manage these resources well, are key to the process of asset
accumulation. A typical life cycle needs of the marginalized is shown below.
Out of these many of the life cycle needs for financial services are not utilized by the financially
excluded because of lack of awareness of the services and finical illiteracy. Mr. Gary R. Bennett,
MD and CEO Max New York Life Insurance in an article has pointed out that “Financial Literacy
ensures that people invest their savings wisely. It ensures that ‘mis-selling’ is curtailed, leading
consumers to take simple precautions…… The promotion of financial literacy can be a win-win
situation for financially excluded. It can help them build assets and create wealth. Financial
literacy skills can be applied in managing a wide range of individual, household, business and
community resources. Moreover once people have acquired financial literacy skills, they cannot
be taken away. Even a one-time course in financial education can have longer-term, even
permanent, benefits.
“…. {financial education} can help to inculcate individuals with the financial knowledge
necessary to create household budgets, initiate savings plans, and make strategic investment
decisions. Such financial planning can help families meet near term obligations and maximize
their longer term well being and is especially valuable for populations that have traditionally
been under served by our financial system…..”.
(Allan Greenspan, 2002)
Also the Committee on Financial Inclusion while defining Financial Inclusion has indicated a host
of services including financial literacy for furtherance of financial inclusion agenda.
“…..It (financial inclusion) should also include credit counseling and financial education /
literacy. While financial inclusion, in the narrow sense, may be achieved to some extent by
offering any one of these services, the objective of “comprehensive financial inclusion” would
be to provide a holistic set of services encompassing all of the above.” (Chapter 2 para 2.18)
Today’s complex financial services market offers consumers a vast array of products and
providers to meet their financial needs. This degree of choice requires that consumers be
equipped with the knowledge and skills to evaluate the options and identify those that best suit
their needs and circumstances. This is especially true for populations that have traditionally
been excluded by our financial system. Financial literacy has been described as the ability to
make informed judgments; the ability to take effective action regarding the current and future
use of money; and the ability to manage money. It is these skills that will enable an individual
to save, borrow, invest and manage his or her financial affairs prudently. With the recent t
rends in economic and social scenario it has become all the more pertinent to impart these
skills to the marginalized. Financially illiteracy may lead to:
 Inability to budget appropriately to meet expenses;
 Inability to identify financial products or services that meet their needs;
 uncertainty in getting and assessing independent financial advice; and
 Victimization to abusive practices and scams
Thus, causing inordinate damage to the process of financial inclusion, financial literacy becomes
a prerequisite for extension of the financial services to the excluded.
2. Importance of Financial Education
In the context, financial education is particularly relevant for people who are resource poor,
who operate at the margin and are vulnerable to persistent downward financial pressures.
Women, in particular, often assume responsibility for household cash management under
difficult and unstable circumstances and with few resources to fall back on. They often lack the
skills or knowledge to make well informed financial decisions. Financial literacy can increase
their decision making power and prepare them to cope with the financial demands of daily life.
It can help them to prepare ahead of time for life cycle needs and deal with unexpected
emergencies without assuming unnecessary debt. Financial planning can help people position
themselves to take advantage of new opportunities when they present themselves.
For micro financial clients, financial education can help them choose wisely among a growing
number of financial options and use micro finance services to their best advantage. With better
knowledge of the range of financial services available, their costs, and the risks associated with
their use, clients can decide which ones best meet their needs. Improved financial
management skills and behaviour can help to reduce the risks of running a business and
financing business activities with loans.
For micro finance institutions (MFI), improved ability of clients to manage debt can help to keep
repayment rates up and delinquency rates down. Involvement of MFIs in assessing financial
education needs of clients can help staff to understand financial management strategies of the
poor, financial service gaps and how micro finance products and services could be improved
and expanded. Ultimately, financially savvy clients can reduce portfolio risks, stimulate
competition, and contribute to the growth and development of MFIs.
Financial education can play a special role for young people by helping them to prepare for
productive and secured futures. Adolescence is a critical time for learning basic skills related to
earning, spending, saving, and investing money. However, most adolescents (and adults) learn
these skills through trial and error. While money management is an important dimension of
day-to-day life for everyone, money management skills can help young people grow more
independent, self-confident, and prepared for the future. Knowledge and practice of good
money management can reduce the vulnerability of young people to many risks associated with
adolescence. Financial knowledge can be a particularly important building block for
adolescents and young people in developing countries because they often start to work at a
young age out of economic necessity. In poor households, adolescents often take on financial
responsibilities at a young age. Moreover, by helping to build savings, other assets, and
decision-making skills, financial literacy can provide young women an economic safety net that
can help them avoid exploitation. By emphasizing practical skills to plan for the future, financial
literacy can play an important role in promoting a future orientation.
Management of financial resources to cope with long-term illness, loss of income, and funeral
costs associated with fatal disease like AIDS, Cancer etc. directly affects the well being of
surviving household members in affected households. In many cases, when parents are sick or
have died, younger household members are left with the responsibility for managing
households and supporting surviving family members. For these young people, and other
surviving family members, skills to manage money and other household resources become
critical for the survival and longer-term well being of their families.
3. Global Initiatives
Financial literacy initiatives have been taken up by not only in the developing nations but also in
the developed economies. Some of the initiatives are described below..
United Kingdom: In the UK, the Financial Services Authority has launched the biggest ever
campaign to improve the financial skills of the population and imparting education to enable a
better appreciation of the risks and rewards inherent in financial instruments.
United States: The US Treasury established its Office of Financial Education in 2002. The Office
works to promote access to the financial education tools that can help all US citizens make
wiser choices in all areas of personal financial management, with a special emphasis on saving,
credit management, home ownership and retirement planning. The Financial Literacy and
Education Commission (FLEC), established By The Congress in 2003 through the passage of the
Financial Literacy and Education Improvement Act, was created with the purpose of improving
the financial literacy and education of persons in the United Sates through development of a
national strategy to promote financial literacy and education. The Federal Reserve, along with
numerous other federal government agencies, is a member of this commission, which is
supported by the Office of Financial Education.
Australia: In Australia, the Government established a National Consumer and Financial Literacy
Task Force in 2002, which recommended the institution of the Financial Literacy Foundation in
2005. Working closely with states and territories, the Foundation has produced a National
Curriculum Framework for Financial Literacy to provide benchmarks for teaching the school
children the importance of managing their money.
Malaysia: In Malaysia, the Financial Sector Master Plan, launched in 2001, includes a 10-year
consumer education program. This agenda includes infrastructure and institutional capacity
development in the areas of financial education, advisory services, distress management and
rehabilitation. For this purpose, the Bank Negara Malaysia in partnership with the financial
industry and other government agencies, has introduced the Financial Mediation Bureau,
Deposit Insurance Scheme, Basic Banking Services Framework as well as created a new class of
licensed Financial Advisers. Savings and education programs are also being promoted in
schools.
Singapore: In collaboration with the government agencies, Monetary Authority of Singapore
launched a national financial education programme (Money SENSE) to enhance financial
literacy and self-reliance of consumers. The programme covers three tiers of financial literacy;
basic money management covers skills in budgeting and saving as also tips on responsible use
of credit (tier I); equipping citizens with the skills and knowledge to plan for their long-term
financial needs (tier II); and imparting knowledge about different investment products and
skills for investing (tier III).
OECD has been taking a proactive initiative in generating awareness about financial education.
It has conducted a major international study on financial education titled ‘Improving Financial
Literacy’ encompassing practical guidelines on good practices in financial education and
awareness. These guidelines, in the form of a non-binding recommendation, are designed to
help countries devise and implement effective financial education programmes, drawing from
the best practices in this area in OECD countries.
4. Initiatives in India
The policy makers have highlighted the importance of the financial literacy since long. Some
efforts have also been made in this regard. As early as January 2003 the then Prime Minister
Atal Behari Vajpayee while inaugurating the national securities market awareness campaign
organized by the Securities and Exchange Board of India (SEBI), had brought the importance of
the Financial Literacy to the fore. He had remarked that India has had a long tradition in
savings and investments. According to him, financial literacy has required, as India’s rural
heartland was getting prosperous, as also in regional areas where media was experiencing a
rapid growth. With an objective of educating the investors and intermediaries the SEBI website
http://investor.sebi.govt.in was launched. This website has been primarily directed towards
urban literate population specifically towards stock market – primary and secondary related
areas.
Pension Fund Regulatory and Development Authority at New Delhi on September 21, 2006
along with Organization for Economic Cooperation and Development (OECD) had organized an
International Conference on Financial Education where Dr. Y.V. Reddy in his inaugural address
had highlighted the importance of financial literacy. During this time RBI had also initiated its
financial literacy programme with the support from OECD. RBI has launched a website to
create awareness about financial matters. They have started a multi lingual web comic strip
aimed at children for teaching them about money. The frame work of the programme is
detailed in Annexure I.
On 20 July 2007, on the day Finance Minister, Shirk P. Chidambaram visited NABARD HO, he
also delivered the Sesquicentennial lecture at the Rajiv Gandhi Centre for Contemporary
Studies at the University of Mumbai in Mumbai. The topic of his lecture was Financial Literacy.
While expressing his concern at the low level of the financial literacy levels in India he
remarked:
“Most individuals, whom we regard as educated or wealthy, do not possess these (financial
literacy) skills. In fact, it is the wealthy who seek the assistance of financial advisers and money
managers. If that be so, what can we say about those who are not very educated or not very
wealthy? What can we say about those who have fixed salaries or uncertain incomes? They do
not have the skills that would make them financially literate; nor do they have the means to
seek sound financial advice.”
During this Hon’ble Finance Minister had specifically highlighted the importance of imparting
lessons in financial literacy at the higher secondary school level. He had ideated that financial
literacy could be made a compulsory subject for students of all streams in the XI and XII
standards. Just as school education makes a person literate and numerate, school and after-
school education must also aim to make the person financially literate. He was of the view that
universities can play an important role in this behalf. A university can provide content through
research and publications. A university can offer instruction through structured courses and
programmes.
NABARD has been addressing this issue through indirectly nevertheless significantly through
the Self Help Group (SHG) Bank Linkage programme. Owing to the modalities and functioning
of the SHGs, the concepts of financial literacy are ingrained among the members. The NGOs
provide the initial learning seed which is taken up further by the SHG members themselves.
Also, through Farmers Club certain workshops on financial literacy have been undertaken. To
provide greater impetus to the efforts of various players, NABARD provides financial support for
implementing financial literacy programme through a special fund created for financial
inclusion.
5. Private Initiatives
Citigroup has launched a financial literacy centre in Mumbai and has dedicated the centre to
the Indian School of Micro finance for Women (ISMW), Ahmedabad. The school is a
partnership between micro finance pioneers, SEWA Bank, Friends of Women World Banking
and Coady International Institute. The centre provides training for both CEOs of grassroots
micro finance institutions and professional from the industry. The course of the centre covers
the financial education such as needs assessment, curriculum development, campaign
execution and evaluation. Recently, they have launched a drive for financial literacy and
formulated an alliance National Alliance for Financial Literacy, of around fifty microfinance
organizations.
GE Money India launched in March 2008 a financial literacy program for the women and youth
of urban slums in Delhi. This is an initiative by the company in partnership with HOPE
Foundation, a NGO and an affiliate of HOPE worldwide. The financial literacy program, aims to
create awareness amongst the women and youth in urban slums about the need for proper
financial planning. The programme aims to roll this program out nationally to help empower
about 10,000 women and youth in the next 3 years. The program is divided into three phases.
In the first phase, it will be rolled out in Delhi, training 740 people in the first year. In the
second phase, the program will be launched across 5 more cities, followed by key regional cities
in the third phase. GE Money India is also in the process of setting up a new website around
financial literacy and education. This website will have a information about fundamentals of
financial planning and guidelines for consumers.
6. Initiatives by Banks:
The Commercial Banks have also started media campaigns for financial literacy. Noteworthy
among them are the newsprint campaign by State Bank of India and ICICI which has started in
June 2008. Some of the commercial banks have started web sites addressing the issue.
Commercial Banks have also set up counseling centres. These counseling centres are
transferring information regarding credit management and also about the best
business/agriculture practices in some cases. However, during the first meeting of Advisory
Board for Financial Inclusion Fund held on 25 July 2008, these initiatives were deliberated upon.
The Advisory Board was of the view that such initiatives are primarily aimed at marketing of the
products of the Bank rather than with the singular altruistic motive of educating the customer
about financial planning.
7. Target Group for Financial Literacy Programme:
The initiatives so far, barring the exception of Citigroup, which is at a smaller scale, all other
initiatives have been targeted at the urban educated population. These initiatives have limited
appeal and are confined to specific target group. There is a need of taking these concepts to
the grass root levels at hinterland specifically for the financially excluded population.
There is a need to commence a financial literacy campaign for the target audience categorized
as:

Category I Category II
SHG Members Small Business traders
Small and Marginal Farmers Anganwadi workers / Animators / IRVs
Landless Labourers Panchayati Raj Institutions
Artisans Bankers
School / College students and other Banking Correspondent / Banking Facilitator
children
Rural Women Farmer’s Club / MFIs / NGOs

8. Campaign Coverage
Financial literacy emphasis on the skills and areas of knowledge that are likely to be necessary
to make informed judgments. The financial literacy framework may consist of the following:

Knowledge and Aptitude Mathematical Skills

 Identifying financial issues that
influence their day lives
 Identifying and describing financial
terms (e.g. income, expenditure,
saving, borrowing, interest)
 Identifying personal funds available
for specific purposes
 Recognising the need to balance
expenses with available funds
 Recognising the relationship
between value and price of a range
of goods and services
 Calculate income available
 Allocate amounts of money from
an allowance for specific purposes
 Develop a budget to meet personal
financial needs
 Keep and check records of financial
transactions
 Retain and review financial
statements
 Compare the interest rates and
other costs for a range of services
from various financial institutions
 Calculate the total cost of
purchasing goods using credit
 Calculating the actual costs
incurred when paying for goods
 and services with cash or with
loans
 Calculating the amount of time it
will take to pay off loans at a
specific rate per week or month

Depending on the target audience financial literacy programme may cover few or all the areas
described above. Based on the above two modules are given in Annexure - II and Annexure - III.
A mention of the USA’s Federal Reserve System’s financial education website, Federal
ReserveEducation.org, may be made here. The website has material intended for the general
public, as well as materials specifically geared towards teachers as well students. It provides
easy access to free educational materials, a resource search engine for teachers, and games for
various ages and knowledge levels. The site can act as a resource in designing target specific
programmes. However, the material is USA specific and needs to be adapted for the Indian
audience.
9. Programme Partners
The literacy programmes can be delivered by establishments like NABARD, BIRD, RUDSETI like
training establishments, MFIs like Basix, NGOs, MFI capacity building institutions, Commercial
Banks, RRBs and Cooperative Bank Training Centres, Educational Institutions, Panchayati Raj
Institutions etc. At the individual level school teachers, Anganwadi workers, banking
Correspondents, Banking Facilitators, Farmers club members, IRVs, ITI passed youth, certified
Income Tax filing assistants etc. can assist in delivery.

10. Programme Delivery

The content and delivery of financial education should correspond to the needs of specific
subgroups of consumers that is, the young or elderly, less or better educated, well-or ill-
informed. Presentations, lectures, conferences, symposia, training courses and seminars can be
actively utilized for this purpose. Depending on the target audience the duration may vary from
one day to three days. In certain cases like for school children it may run to three months with
45-60 minutes weekly input.
Second, publications in diverse forms, including books, brochures, magazines, booklets /
pamphlets, direct mail documents, can also be useful in this regard.
Third, credit counseling can be a potent tool for financial entities to expand the reach of
financial education. Institutions may set up such centres for educating the masses. However,
they should refrain from utilizing this as a marketing outlet for their products.
Fourth, it might be of interest for reputed organizations like the National Council of Applied
Economic Research (NCAER) / BIRD and other such agencies to conduct surveys to ascertain the
degree of consumer awareness about financial products and services. The findings emanating
from such studies could be shared with financial entities to enable them to address the gaps in
their service delivery and promote informed decision-making.
Fifth, concerted media campaigns using all possible avenues of mass communication like films,
Folk Theater, street plays, radio programmes can be expected to impart greater efficacy to the
process.
Sixth, bodies, such as the Financial Planning Standards Board of India (FPSBI), Indian Institute of
Banking and Finance, IGNOU etc. may design a short term certificate course for capacity
building of personal for spearheading financial literacy programme.
Apart from the above four other long term pertinent threads for taking financial literacy agenda
forward are:
 Sensitising the Central and State Government to launch the Financial Literacy Psrogramme
as Arthik Saksharta Abhiyan on the lines of Rashtriya Saksharta Abhiyan (National Literacy
Mission) for which support of Education, Information and Publication Departments of the
government and National Service Scheme (NSS) may be sought.
 For children finance related aspects may be made a part of the school curriculum
 Making a part of the Corporate Social Initiative of the corporate sector
 Involving Universities and other educational institutions.
11. Conclusion
Financial literacy provides the groundwork for financial inclusion and leads to overall
development. It gives the understanding of the basic rudiments of finance and money and
rasion d’etre for the rural masses to extricate themselves from the drudgery and vicious debt
cycle. Significantly, the requirements of the target population due to its special characteristic
and features are different from that of the urban client. It is essential that the practitioners
reach the rural population in the way the target group wants, understand and absorb.

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 Annexure I

Framework of the OECD Financial Education Programme

International Gateway for financial education – OECD

Government Programmes – India: Project Financial Literacy, Reserve Bank of India

Government sector: Reserve Bank of India

Audience / Coverage:

Children students, women, rural and urban poor, defence personnel and senior citizens.

Tools and Programmes:

Films, currency notes posters, games (puzzles to recognize the bank notes), essay competition
for school children, Basic Banking online story book for school kids, Money Kumar and The
Monetary Policy cartoon.

Description (Aim and Needs):

The objective of the project is to disseminate information regarding the central bank and
general banking concepts to various target groups, including, school and college going children,
women, rural and urban poor, defence personnel and senior citizens.

Weblink:

http://www.rbi.org.in/financialeducation/home.aspx
(available in English as well as many Indian regional languages)
 Annexure II

Area Topics
Basic principles of money management Assessing financial situation
Setting financial goals
Distinguishing between needs and wants
Assessing your financial personality or style
Managing cash flow Making a financial plan
Developing a budget
Following a budget
Spending wisely – stretching your money
Building assets Housing, land, property, and other physical
assets
Investing in a business
Protecting assets
Dealing with life cycle events Marriage
Household formation
Birth of children
Children’s education
Retirement / old age
Death
Interfacing with formal and informal financial Saving – opening a savings account; setting
institutions savings goals
Borrowing – when to (and not to) borrow; risks
associated with borrowing money; comparing
loan terms and conditions calculating interest;
how to manage debt
Insurance – under standing what it is and can
do
Dealing with special challenges Illness of family members
Death of family members
Own illness
Extending help to other families
Divorce or family breakdown
Job loss
Natural disasters / calamities
Financial decision making processes Joint decisions
Independent decisions
Planning ahead for the future Investments
Old age / retirement / Death
Career planning
Earning money Money making ideas
Looking for a job (paid employment)
Starting and managing your business
Career planning
 Annexure III
Financial Literacy Programme – Module II
Income
 Identify sources of income
 Investment as a source of income
(a rupee invested in micro insurance
can earn upto say thirty thousand
rupees at the time of distress)
Spending and Credit
 Compare the benefits and costs
of spending decisions
 Evaluate information about
products and services
 Compare the advantages and
disadvantages of different payment
methods
 Analyze the benefits and costs
of credit
 Compare sources of credit
 Explain factors that affect
creditworthiness and the purpose of
credit records
 Identify ways to avoid or correct
credit problems.
Money and Management
 Explain how limited personal financial
resources affect the choices people make
 Identify the opportunity cost of financial
decisions
 Discuss the importance of taking responsibility
for personal financial decisions
 Apply a decision-making process to personal
financial choices
 Describe how insurance and other risk-
management strategies protect against financial
loss
 Design a plan for earning, spending, saving,
and investing.
Saving and Investing (For Advance learners)
 Explain the relationship between saving and
investing
 Describe reasons for saving and reasons
for investing
 Compare the risk, return, and liquidity of
investment alternatives
 Describe how to buy and sell investments
 Explain how different factors affect the rate
of return of investments
 Evaluate sources of investment information
 Describe the rights and responsibilities of
buyers and sellers under consumer protection
laws.