The Importance Of Financial Literacy: Why It Needs To Be Included In Our Education System?

In a rapidly changing global environment, financial literacy is one of the most undermined skills that could determine the countries' future. On a macro-level, governments have expert analysts to manage and predict the financial future of the countries while studying the changing geopolitical relationships. However, the need is arising to include financial literacy in the micro-levels of the economy.

The COVID-19 pandemic has further amplified the need for financial education to accelerate the economy's growth. The pandemic left millions jobless in a matter of months, with ever-increasing bills to pay. The economy is slowly getting back on track, and investments are increasing in the retail sector, but the looming threat of lack of financial literacy could have long-lasting consequences.

Financial literacy refers to the ability to effectively manage several financial skills, including personal finance management, budgeting and investing. Financial literacy builds the foundation of an individual's relationship with money. Experts often believe that education in terms of finances is a lifelong process, and it is better to start as early as possible. In recent times, financial investments and services have become standard amongst people with all kinds of economic statuses. Financially literate people are less vulnerable to falling prey to financial fraud.

Only 24% Indians Financially Literate

India is home to almost one-fifth of the world population and has a literacy rate of nearly 80 per cent. Unfortunately, only 24 per cent of people in the country are financially literate. Three-fourths of the Population in India does not know or understand the pressing need of managing finances is scary for a country that depends on the economy for its development. Nonetheless, there has been a remarkable improvement in the percentage in the last eight years. In 2013, only 15 per cent of the country's Population knew how to manage their finances and savings.

The Times of India quoted the President of the Institute of Company Secretaries of India (ICSI), Ashish Garg, "Despite having the world's 10th largest and Asia's oldest stock exchange, low per capita income, educational inequality, non-banking habits, informal borrowing and lending practices that have been going on for years. Thus, it is imperative for the country to now understand how to optimize its resources and boost the economic and financial backbone of the nation."

Policies Launched By The Centre

The Reserve Bank of India (RBI) launched the National Strategy of Financial Education (NSFE) 2020-2025. The policy aims to teach financial literacy concepts among ordinary people, encouraging them to save actively and boost their participation in the financial markets. The initiative formulates content for financial education and develops the capacity for a code of conduct among the providers. The Central Bank recommends including financial education in the curriculum at schools and colleges. Inculcating the concept at an early stage helps people put it to use later in their lives.

Moreover, the National Centre for Financial Education (NCFE), which the Reserve Bank of India has set up (RBI), Insurance Regulatory and Development Authority of India (IRDAI) as well as Pension Fund Regulatory and Development Authority (PFRDA), aims at educating Indians on primary areas such as the difference between saving and investing, the power of compounding, the time value of money as well as the importance of diversification, among others.

The need for financial literacy arises mainly when young people, who have just started their careers, find it challenging to manage their finances and end up spending more than they are earning. Stepping into the vicious debt trap increases the probability of not having enough to provide for themselves and their families. Later, when they realize the importance of financial education, it becomes less valuable since they already have a debt to repay. Therefore, the National Centre for Financial Education would spread awareness about primary financial products, such as bank accounts, to link new users to the financial sector. Moreover, the initiative would educate the existing users in the financial industry to make informed decisions. Lastly, NCFE would also ensure customer protection from risks and fraud by making them vigilant.

Unsafe Virtual World

The current cyber security situation also threatens the finances of individuals and companies alike. A report by Surfshark, a Virtual Private Network (VPN) provider, ranked India third in data breaches in the world. Before India, the two countries were the United States of America (USA) and Iran. The number of data breaches has shot up by 356 per cent in India since 2020. A majority of the Indian Population comprises youth with little or no financial literacy, thus making vast sections more prone to falling prey to financial fraud.

Finance ministers at the 2012 Asia-Pacific Economic Cooperation (APEC) Ministerial Meeting adopted a policy statement recognizing the importance of financial education in schools and encouraging APEC members to make use of the OECD's High-level Principles on National Strategies for Financial Education, Guidelines for Financial Education in Schools and other methodologies and tools. The statement also encourages APEC economies to consider participation in the Financial Literacy Measurement Programme for International Students Assessments (PISA) in 2015.

Financial Curriculum In Schools

Including financial education at the school level would be an efficient policy tool to tackle the menace of financial illiteracy. Moreover, the government would not have to worry about educating the upcoming generations about managing their finances responsibly at later stages in their lives. Educating people on real-life issues would raise a youth that has a pragmatic approach towards their financial decisions, thus benefitting the economy by the end of the day.

A robust understanding of the financial principles would help people understand and negotiate their economic landscape while also understanding the risk of financial losses they might incur. Financial literacy would improve the ability to manage one's finances in the present.

Still, it would eventually increase personal wealth, protect oneself and their families in emergencies like the pandemic of COVID-19, secure a future for their families, and better retirement plan. Ultimately, a lesser financial burden implies more financial and mental freedom.

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