An RBS-like scheme at the national level, if planned, can be effective if FPCs are targeted to identify beneficiaries
By Manavendra Prasad
Our approach to personal financial solutions has seen a sea change. Fixed or guaranteed return products have reduced as a proportion of our savings, and market-related returns are not arcane any more. The mutual fund industry has grown from Rs 5 lakh crore in March 2008 to more than Rs 23 lakh crore. There are over 2.52 crore systematic investment accounts, adding up to Rs 8,000 crore of monthly contribution. Life insurance is being bought for its primary purpose, i.e. protection. Health insurance is in the consideration set of most in urban India. Insurance density or premium per head stood at $73 for FY18 as against $11.5 in 2001. Credit is more easily available.
All this has been achieved as a result of awareness programmes and workshops held in schools and colleges, housing societies, investor forums, social clubs, citizen forums. Literacy materials are available in regional languages, and print and electronic media have been used for advertising. RBI’s financial literacy and counselling centres, set up by banks, offer credit counselling and debt management.
There has been much activity in investor awareness space. RBI, PFRDA, stock exchanges, insurance and mutual fund industry have used the media to spread the word. Insurance industry’s ‘Bima Bemisaal’ and mutual fund industry’s ‘Mutual Funds Sahi Hai’ campaigns have been popular.
But all of this, for the country as a whole, is barely the tip of the iceberg. Surveys such as the S&P Global FinLit point out that over 75% Indians fare badly in financial literacy. The absence of financial competence is widespread because financial awareness programmes are impersonal, one-time activities. These initiatives are product-specific and fragmented across regulators, industry bodies. For a layperson, there is no single source of independent/unbiased information related to personal finance. In the absence of any entity harmonising conflicts between financial products, there is no comprehensive solution.
Financial awareness has assumed greater importance as financial markets have become complex. There is massive information asymmetry between markets and the citizen, and between the rich and the poor, leading to the latter finding it difficult to make informed choices. Mis-selling is rampant. This right, not to be mis-sold a financial service, is difficult to implement, hence the need for a comprehensive, independent and unbiased source of information.
The solution lies in going beyond providing information to imparting knowledge that will help a layperson plan long-term financial goals. The paradigm shift will happen by providing application-oriented solutions and by being available for multiple consultations. A citizen is going to need help at hand when buying a financial product and for financial goals linked to different life stages.
Leveraging smartphones and setting up multilingual phone-based helpline will allow citizens opportunities for repeat consultation and expand the scale of operations. Smartphones are a platform for promoting financial awareness, and can provide a one-stop solution to the end user. The service can span across availability of basic information to financial planning and investment knowhow. It can cover skills that will help a layperson improve financial well-being—budgeting, savings and investments, responsible use of credit, planning for long-term—and can impart knowledge about different investment and insurance products. Prevention of mis-selling is the most apt form of investor protection and the government is duty-bound to act on it. Given the structure and regulatory ecosphere, it will require a government body to take up this task. Only an empowered government entity will be suitably placed to overcome divisions of jurisdiction of different regulators.
Many countries, especially OECD, have made strides in spreading financial education. We should learn from the UK’s Money Advice Service and Singapore’s MoneySense. These initiatives, and many more, aim to enable citizens become self-reliant in financial affairs. Such services will also enable individuals to take effective action to improve overall well-being and avoid distress in matters that are financial. Such an initiative could be another tool towards the welfare of citizens, especially those on the margins.
The author is a financial services professional