Financial Literacy Essay Example
Why do we need financial literacy?
India is among the world’s most efficient financial markets in terms of technology, regulation and systems. It also has one of the highest savings rate in the world - our gross household savings rate, which averaged 19% of gross domestic product (GDP) between 1996-97 and 1999-2000, increased to about 23% in 2003-04 and has been growing ever since.
While savings are more in India, where the savings are invested is a cause for concern. Investments by households have been more into either bank fixed deposits, risk-free government-backed securities and low-yielding instruments, or in non-financial assets.
A majority of our households do not use modern financial markets. As per an RBI report, only 1.4% of household savings was invested in equity, mutual funds and debentures in 2003-04. Though this went up to about 4% in 2005-06, it is still very small.
Unless the common person becomes a wiser investor and is protected from wrong doings, wealth creation for the investor and the economy will remain a distant dream. We need to convert a country of savers into a nation of investors.
Which one should you use?
Such questions and choices appear tough to even urban population not to talk of those in rural areas, where most of India’s population is.
When it comes to financial solutions, investors tend to use thumb rules or seek advice from friends and relatives, which are often poor approximations compared to those that follow from a systematic process. If they get bad advice, their outcomes will be poor, and they will start to lose faith in the financial sector. A big improvement of financial knowledge of households is necessary so that they participate continuously in financial markets.
Financial literacy plays a significant role in the efficient allocation of household savings and the ability of individuals to meet their financial goals. It also means the ability to seek sound financial advice.
Financial literacy has
India is among the world’s most efficient financial markets in terms of technology, regulation and systems. It also has one of the highest savings rate in the world - our gross household savings rate, which averaged 19% of gross domestic product (GDP) between 1996-97 and 1999-2000, increased to about 23% in 2003-04 and has been growing ever since.
While savings are more in India, where the savings are invested is a cause for concern. Investments by households have been more into either bank fixed deposits, risk-free government-backed securities and low-yielding instruments, or in non-financial assets.
A majority of our households do not use modern financial markets. As per an RBI report, only 1.4% of household savings was invested in equity, mutual funds and debentures in 2003-04. Though this went up to about 4% in 2005-06, it is still very small.
Unless the common person becomes a wiser investor and is protected from wrong doings, wealth creation for the investor and the economy will remain a distant dream. We need to convert a country of savers into a nation of investors.
Which one should you use?
Such questions and choices appear tough to even urban population not to talk of those in rural areas, where most of India’s population is.
When it comes to financial solutions, investors tend to use thumb rules or seek advice from friends and relatives, which are often poor approximations compared to those that follow from a systematic process. If they get bad advice, their outcomes will be poor, and they will start to lose faith in the financial sector. A big improvement of financial knowledge of households is necessary so that they participate continuously in financial markets.
Financial literacy plays a significant role in the efficient allocation of household savings and the ability of individuals to meet their financial goals. It also means the ability to seek sound financial advice.
Financial literacy has