A study on Effectiveness of Financial education programs in India.

Abstract: The first decade of the twenty-first century has seen a universal recognition for
spreading financial literacy among people. The concept of improving financial literacy as a
national project has been gradually building. The financial crisis also triggered demand for
financial literacy programmes around the world as well as more comprehensive strategic
approaches aimed at wider access to financial products, and increased awareness as well as
improved financial literacy and financial consumer protection. Most of the countries are adopting
a unified and co-ordinate national strategy for financial education. Improving financial literacy
has become an essential means towards greater economic, social and financial inclusion and an
integral part of financial reform to prevent future crises. In all countries alike, evidence points to
worrying low levels of financial awareness, knowledge, attitudes and competencies of large
segments of the population. This is especially the case for vulnerable consumers who recently
gained access to financial products, as well as for youth, women, migrants and low income
groups. Thus, effective financial education can equip our citizens with the skills to take
advantage of available financial services and to better assess the (financial) risks they confront.
The present paper highlights improving financial education in India helps in promoting economic
recovery and growth, supporting small and medium enterprises, boosting the creation of new
jobs as well as decreasing poverty.
Keywords: Financial education, financial products, consumer protection, Financial literacy.

Given the fact that India is having large population, a fast growing economy with national focus
on inclusive growth and an urgent need to develop a vibrant and stable financial system, it is all
the more necessary to quickly formulate and implement a national strategy. Also since a large
number of stakeholders including the central and state governments, financial regulators,
financial institutions, civil society, educationists and others are involved in spreading financial
literacy; a broad national strategy is a prerequisite to ensure that they work in tandem according
to the strategy and not at cross purposes.
Most financial literacy surveys conducted worldwide, including in G20 countries show that a
majority of the population do not have sufficient knowledge to understand even basic financial
products and the risks associated with the products. A majority of individuals do not plan for the
future and fail to make effective decisions to manage their finances. As the global crisis has
shown, this can have a negative impact on financial and economic stability as well as on
individuals or households wellbeing especially among low-income groups.
We believe financial education supported by effective consumer protection, while not being a
panacea, can lessen the magnitude of future crises by enabling individuals to effectively use
financial products and services and to make sound choices to protect themselves and fruitfully
participate in financial and economic activities.
Improving financial literacy has become an essential means towards greater economic, social and
financial inclusion and an integral part of financial reform to prevent future crises. In all
countries alike, evidence points to worrying low levels of financial awareness, knowledge,
attitudes and competencies of large segments of the population. This is especially the case for
vulnerable consumers who recently gained access to financial products, as well as for youth,
women, migrants and low income groups. Thus, effective financial education can equip our
citizens with the skills to take advantage of available financial services and to better assess the
(financial) risks they confront. Financial education is also critical to restore trust and confidence
in the financial system, promote financial stability and provide the necessary public backing to
financial reforms.

Improved access to basic financial products including bank accounts, credit and saving products for a
rising middle class in emerging economies, the increasing sophistication of the financial landscape and
products while public and occupational welfare benefits are shrinking in most developed countries has
shed light on the importance of consumers financial decisions. Nevertheless, consumers around the world
and in particular vulnerable groups display limited knowledge and understanding of financial products
and concepts. They also have difficulty making long-term informed financial decisions and selecting
financial products that match their needs. This may have negative consequences not only on individuals
and households future financial planning well -being, but also on the long-term stability of financial and
economic systems. To respond to these concerns and support consumers financial empowerment,
governments and relevant stake holders in many countries have established financial education initiatives
as a complement to financial consumer protection and regulatory reforms, as well as policies aimed at
reinforcing financial access.

The formulation and implementation of National Strategy for Financial Education will reap rich
benefits to the country and can be attributed to following reasons:
a) Inclusive Growth, Financial Inclusion & Financial Education: Financial education
play a vital role in making demand side respond to the initiatives of the supply side
interventions. Financial inclusion is one of the top most policy priorities of the
Government of India. One of the most visible aspects of the governance has been agenda
of social inclusion of which financial inclusion is an integral part. Financial literacy, and
education, plays a crucial role in financial inclusion, inclusive growth and sustainable
prosperity*.
b) Knowledge and skill: Increasing range and complexity of products has made it very
difficult for an ordinary person to take an informed decision. Financial literacy develops
confidence, knowledge and skills to manage financial products and services enabling
them to have more control of their present and future circumstances.
c) Freedom from exploitation: Financial literacy will help in protecting society and
individuals against exploitative financial schemes and exorbitant interest rate charged by
moneylenders.
d) Avoidance of over indebtedness: Financial education will help to avoid overindebtedness, improve quality of services and make wise financial decisions.
e) Promoting entrepreneurship: Small entrepreneurs who would be educated and
already have a business sense will benefit through awareness about new financial

products and help them to understand the dynamics of market mechanism and improve
their business dealings.
f) Positive Spill-over effects: Financial education can lead to multiplier effects in the
economy. A well educated household would resort to regular savings, which in turn
would lead to investment in right channels and income generation. The financial well
being of individuals will in turn increase the welfare of the society.
g) Shifting of Pension Responsibility from State / Corporations to Individuals: A
financially educated person would be in a better position to assess his/her own
requirements and make savings in appropriate schemes. It reduces strain on social
programs and pension plans, and fosters an economy that is more resilient.
h) Behavioral Change: The proliferation of financial products has led to its
indiscriminate usage without realizing its financial implications by the user. In fact, the
recent global financial crisis has raised the question whether individuals lack of financial
knowledge led them to take out adjustable rate mortgages or incur credit card debt they
could not afford.* Financial Education can become an agent of behavioral change.
i)

Deeper participation in Financial Markets: In India, we need to convert savers

into investors. More participation of domestic retail investors in securities market
will give dividends by Increasing depth of securities market, reducing dependence
on foreign investors and domestic savers reaping benefits of Corporate Growth
and reducing strain on Government Treasury for investment in National
Infrastructure.

The key components of financial literacy efforts could be to spread across country some of the
following simple messages of day to day finance.
Why Save?
Why invest? Why insure?
Why you will need regular stream of income post working life pension?

Why save or invest regularly and consistently?

Why insure fully?
Why save with banks?
Why borrow within Limits?
Why borrow from banks?
What is the difference between saving and investment?
Why borrow for income generating purposes?
Why repay loans?
Why repay loans in time? Why do you need insurance?
What is interest? How moneylenders charge very high interest rates?
The key components of financial education efforts could be
a) Understanding the key financial products one may need throughout ones life including bank
accounts, insurance, retirement savings plans and securities market investments like stocks,
bonds and mutual funds.
b) Understanding basic financial concepts like compound interest, present and future value of
money, annuity, investment return, risk, protection and diversification and so on.
c) Developing skills and confidence to be aware of financial risk and opportunities and to
benefit from them.
d) Making good financial choices about saving, spending, insurance, investing and managing
debt throughout ones life: for example, when getting an education, starting a job, buying a
house, starting a family, getting ready to retire and living out the senior years.
Assessment of the need of Financial Education
A. National Survey on Financial Education

Several Countries such as Australia, New Zealand, France and the USA have conducted
detailed survey on the state of financial literacy in their countries. These surveys mainly
concern topics related to money management, financial planning, choosing and buying
products. International Network on Financial Education (INFE) has also conducted a
survey on Financial Literacy across 12 countries. Further, cross country surveys have
been carried out for School students and adults. The results of the survey serve various
purposes viz.
a) Identifying the needs and gaps.
b) Establishing the direction of the effort.
c) Identifying special groups such as women and illiterates that need attention
d) Serving as an evaluation and benchmarking standard as the result of future initiatives
can be measured by comparing with the baseline numbers.
While the Groups in India may be different in view of large scale financial exclusion, it is
necessary that as a very first step towards financial literacy, a nationwide sample survey
may be by different regulators through an outside agency like NCAER etc., shall be
carried out for assessing the state of financial inclusion and financial literacy.
The survey should have the following elements:
a) The state of financial inclusion i.e. Whether the person has Saving Account, Loan
Account, Mutual Fund Investment, Insurance Policy, Pension plan etc.
b) The state of awareness of financial products viz. how many types of savings and
investments options are available to him.
c) The state of financial competency viz. whether he understands the concept of
compound interest, Present Value of Money, annuity etc.
d) His/her attitude towards money viz. whether he prepares a budget, or consider drawl
from credit cards as normal means of financing.
e) His/her attitude towards risk
f) Whether the person has any pension coverage for old age and if so, the nature of
pension that is available Once the initial assessment is done the incremental progress can
be assessed through reporting by market players to regulators. An effort in this regard is
underway across regulators through Technical Group of Sub Committee of FSDC.
B. Assessment through Complaints and Creation of Complaint Repository
The repository of complaints available with regulators gives an insight of the areas
where financial education would be able to improve consumer awareness of various

products and also help in addressing gaps in consumer protection. To use this repository
effectively, there is need of
a) Systematic collection
b) Monitoring, and
c) Analytical study of the collected complaints.
C. Assessment of Needs through International Experience
While in India, in view of large scale financial exclusion the needs of financially
illiterate and excluded may be different from other countries where large sections of
populations are financially included, a cursory look at the literature shows that the basic
issues in financial education for those already included are not different in most
countries. Even as we do not have the results of our survey, a study of international
survey will indicate the broad directions that our nation should take. A systemic study by
a dedicated team will be necessary..
D. Efforts made so far in the field of Financial Education
1. RBIs initiatives on Financial Education
Reserve Bank of India has undertaken a project titled Project Financial
Literacy. The objective of this project is to disseminate information regarding the
central bank and general banking concepts to various target groups, including
school and college students, women, rural and urban poor, defense personnel and
senior citizens. The project envisages a multi pronged approach. The project has
been designed to be implemented in two modules, one module focusing on the
economy, RBI and its activities, and the other module on general banking. The
material is created in English and other vernacular languages. It is disseminated to
the target audience with the help of banks, local government machinery, schools
and colleges through presentations, pamphlets, brochures, films and also through
RBIs website.
2. SEBIs Initiatives on Financial Education
Securities Exchange Board of India has embarked financial education on a
nationwide campaign. To undertake financial education to various target segments
viz. school students, college students, working executives, middle income group,
home makers, retired personnel, self help groups etc., SEBI has empanelled
Resource Persons throughout India. The Resource Persons are given training on
various aspects of finance and equipped with the knowledge about the financial

markets. These SEBI Certified Resource Persons organise workshops to these

target segments on various aspects viz. savings, investment, financial planning,
banking, insurance, retirement planning etc. More than 3500 workshops have
been already conducted in various states covering around two lakh and sixty
thousand participants.
Investor education programs are conducted by SEBI through investor associations
all over the country. Regional seminars are conducted by SEBI through various
stakeholders viz. Stock Exchanges, Depositories, Mutual Funds Association,
Association of Merchant Bankers etc. SEBI has a dedicated website for investor
education wherein study materials are available for dissemination. SEBI also
publishes study materials in English and vernacular languages. Under Visit
SEBI programme, School and college students are encouraged to visit SEBI and
understand its functioning. SEBI has recently set up SEBI Helpline in 14
languages wherein through a toll free number, investors across the country can
access and seek information for redressal of their grievances and guidance on
various issues.
3. IRDAS Initiatives on Financial Education
Insurance Regulatory and Development Authority has taken various initiatives in
the area of financial literacy. Awareness programmes have been conducted on
television and radio and simple messages about the rights and duties of
policyholders, channels available for dispute redressal etc have been disseminated
through television and radio as well as the print media through sustained
campaigns in English, Hindi and 11 other Indian languages. IRDA conducts an
annual seminar on policy holder protection and welfare and also partially
sponsors seminars on insurance by consumer bodies. IRDA has got a pan India
survey on awareness levels about insurance carried out through the NCAER in a
bid to improve on its strategy of crating insurance awareness. IRDA has also
brought out publications of Policyholder Handbooks as well as a comic book
series on insurance. A dedicated website for consumer education in insurance is
on the verge of launch.
4. PFRDA Initiatives on Financial Education
The Pension Fund Regulatory and Development Authority, Indias youngest
regulator has been engaged in spreading social security messages to the public.

PFRDA has developed FAQ on pension related topics on its web, and has been
associated with various non government organizations in India in taking the
pension services to the disadvantaged community. PFRDAs initiatives have
become more broad-based with direct mass publicity on NPS both as individual
model through POPs and group models through Aggregators. PFRDA has issued
advertisements in print media and electronic media through radio and television.
PFRDA appointed intermediaries are called Aggregators who are directly
responsible for pension awareness mostly in vernacular languages and in line with
socio-economic sensibilities.
5. Market players Initiatives on Financial Education
Commercial banks are increasingly realizing that they are missing out on large
segment of financially illiterate and excluded segment of prospective customers.
Also, in view of the national emphasis on electronic benefit transfer the
commercial banks have initiated various measures for creating awareness through
Financial Literacy and Counseling Centers and Rural Self Employment Training
Institutes on financial literacy. The objective of these centers is to advise people
on gaining access to the financial system including banks, creating awareness
among the public about financial management, counseling people who are
struggling to meet their repayment obligations and help them resolve their
problems of indebtedness, helping in rehabilitation of borrowers in distress etc.
Some of these credit counseling centers even train farmers/women groups to
enable them to start their own income generating activities to earn a reasonable
livelihood. Even top management of commercial banks is undertaking Outreach
visits to villages with a view to spread financial literacy.
E. Mapping of Financial Education Content in the School Curriculum
The most effective way is to weave financial education in the normal content of
curriculum. For example, compound interest is taught in Arithmetic as an abstract
concept of, A lending to B at some interest rate compounded annually. This can be
turned into an opportunity of financial education by weaving into a problem of a
company that borrows from a bank or a bank customer who opens a Cumulative

Deposit Account instead of a simple Fixed Deposit Account. Similarly, there are
opportunities available in the syllabi of Social Studies, Moral Science etc.