By Dr. Kumar Gaurav & Dr. Pallavi Seth
Financial literacy is the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being. The Organisation for Economic Co-operation and Development (OECD) defines Financial Literacy as a combination of financial awareness, knowledge, skills, attitude, and behavior necessary to make sound financial decisions and ultimately achieve individual financial well-being.
What is the level of financial literacy in India?
The National Centre for Financial Education in 2019 conducted a survey and said that only 27 per cent of Indians are financially literate. Amongst the BRICS countries, financial literacy in India is the lowest.
As per the survey conducted by Standard and Poor, “While the array of financial products available in Asia continues to grow rapidly, the survey suggests that most consumers lack a general understanding of credit, compound interest and other key concepts”.
Why is financial literacy important for children?
Most of the parents give a piggy bank to their children in which they save their spare change, birthday money or cash gifts received from their relatives/ families. This concept helps them to maintain a discipline of saving. But financial markets are complex and are much beyond the concept of saving only. If children understand the concept of financial markets as per their age, this can prevent them from investing in wrong financial instruments later.
When children are aware of the concept, they can influence their families by sharing the knowledge on importance of savings and take necessary steps to better manage their money. Thus, spreading the concept of financial literacy and creating financial awareness among children can be a great help.
Where can children invest and save?
There are many schemes or financial products which can be opened for children under the guardianship of parents .Like opening a savings account with a kid will help them not only understand the importance of saving but also investment. Public Provident Fund (PPF) can be opened with a guardian only with Rs 100. After becoming adults, they can operate this account themselves. Although PPF account is for 15 years, this account can be extended indefinitely in a block of 5 years. After becoming adults, they can operate this account themselves.
A Sukanya Samridhi Yojana account can be opened for a girl child below 10 years. After the girl child becomes 10-year-old, they can operate the account themselves as well. Even investments through Systematic Investment Plan (SIP) can be made for a kid with a parent, and this can be a good replacement of “home -piggy bank” which we give to children and can help them in learning the saving and investment concept in the long run. There are several other financial products available which can be chosen as per the needs of the family.
Investing in a scheme with a child would give them ownership and make them responsible. As a parent, you should discuss with them about the financial product so that they understand the nitty gritty of these products. You can make financial plans for them which can help them buy their dream item like a bicycle, playstation etc. and help them understand how this financial product would be helpful in fulfilling their wishes.
How can you teach them financial literacy?
There are professionals like doctors, lawyers , professors who are expert in their domain but many times they also lack knowledge while making decisions regarding their personal finances. If the students understand the nitty gritty of financial markets starting from their school age, they can make the right decision at the right time.
Institutions like National Centre of Financial Education (NCFE) run the flagship school training program and around 150 schools in India are certified ‘Money Smart’ schools. Under the programme, schools are provided means for imparting financial education through free workbooks for students and training for teachers.
National Stock Exchange is offering financial education programmes in around 4,000 schools across six states, namely, Nagaland, Gujarat, Himachal Pradesh, Goa, Tamil Nadu, and Punjab.
The Central Board of Secondary Education (CBSE) also offers courses like Financial Markets Management, Banking, and Insurance at Secondary and Senior Secondary level.
Apart from the initiatives taken from these institutions, as a parent, you should also impart financial literacy amongst students like doing the grocery shopping with them making them understand the basics of commerce. Opening some schemes under your guardianship with them, can make them responsible and help them understand the financial products. There are several online and offline short-term courses available on wise money management for school and college students. You should encourage them to enroll in these courses to be more financially literate and take the right decision at the right time.
(Dr. Kumar Gaurav is Co-Founder of Nurturing Wealth and Dr. Pallavi Seth is a faculty in Amity School of Insurance, Banking and Actuarial Science, Amity University, Noida)