What is financial literacy and why students need to be financially literate | The Financial Express

What is financial literacy and why students need to be financially literate

Those who are financially literate do not only secure their future but are also less likely to fall prey to various scams.

What is financial literacy and why students need to be financially literate
Simply put, to be financially literate is to know how to manage your money.

By Anisha Madhukar

In literal terms, financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Simply put, to be financially literate is to know how to manage your money. The ability to be financially free and secure, and be able to confidently deal with any monetary roadblock coming one’s way is an essential requirement for a fulfilling life.

However, this skill doesn’t come naturally and must be nurtured right from childhood. Those who are financially literate do not only secure their future but are also less likely to fall prey to various scams as they have a good understanding of financial matters and thus take informed decisions. They possess skills to make sound investments, create and manage a budget and maintain a good financial portfolio. The first classroom for this skill; therefore, is the home. Parents must teach their children how to manage money in the ever-increasing complexity of shares, savings, loans, and now, digital currencies. However, schools also have a role to play and must restructure their pedagogy to nurture this skill to allow children to make financially wise decisions as they become adults. 

As a step in this direction, schools have to first look at changing the overall approach towards teaching Economics and Finance. As per a recent report by SEBI, only 27% of adults and 16.7% of teenagers in India are financially literate. The National Education Policy (NEP) identifies the need to inculcate a financial aptitude from a young age. In addition, Central Board of Secondary Education (CBSE) and the National Payments Corporation of India (NPCI) have collaborated to develop a financial literacy curriculum for grade VI students that will allow them to grasp basic financial concepts early on. These are all encouraging steps!

In line with the NEP, a few progressive schools have introduced Financial Literacy Programs for all grades. At the School that I represent, the financial literacy curriculum is carefully planned for different age-groups and grades. Concepts such as the barter system, emergence of money, essential components of the market system and exchange are introduced in the primary classes. 

In Middle school, the basics of book-keeping,  budgeting, introduction to banking systems and the magic of compounding are emphasized. For example, a complete module on running a thrift shop is organized where students use their learnings of book-keeping and stocks to manage the shop. As the students step into senior school, abstract concepts like choice, scarcity, cost, benefit, marginality and taxation are introduced through drama and games. In grades 11 and 12, students are able to design stock market simulations that allow them to appreciate and view the importance of investments.

Being financially literate also encourages the entrepreneurial spirit amongst students. It helps them to understand the various ways in which they can manage and grow money, along with an understanding of running a start-up. These entrepreneurial skills enhance the overall financial knowledge and experience of the learners. The students are given the opportunity to implement their knowledge by way of projects. 

As the world copes with the challenges thrown up by the pandemic, and consequent economic and social quandary(s), it is imperative that the young minds appreciate the importance of Financial Literacy. The experiential immersions in financial literacy can help prepare students to face the challenges which the future withholds for them. 

The author of this article is IBDP Economics Faculty, Shiv Nadar School, Noida.

Also Read: Educational institutes need to produce industry ready students to meet India’s goals, says Sitharaman

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