a study on fiancial illietracy

8/7/2019 A Study on Fiancial Illietracy

1/41

201bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb0

2012010

Project Report Submitted to

RESERVE BANK OF INDIA

BHUBANESWAR

ORISSA

By - BHISMA NARAyAN ROUT

RBI yOUNG SCHLOR 2010

Context and Concern in Financial Education &Literacy: India Specific Study


2/41

2 | P a g e

ACKNOWLEDGEMENTS

I am indebted to Reserve Bank Of India for granting me the

opportunity to transact a project under the RBI Young Scholars Award

Scheme.

My sincere gratitude and thanks are due to Shri. B.K. Bhoi (Regional

Director),My mentor Mr. A.K. Mohapatro (Assistant General Manager,

Personnel Department, Reserve Bank Of India, Bhubaneswar) for his guidance

and key inputs which were essential to complete the project.I am grateful to Mr. Kalika Prasad Mohapatra (A.M, RPCD), Mr Jyoti

Shankar Mishra (A.M, RPCD) for their valuable contribution all through the

project.

Specially thanks to Mr. S. Behera (A.M, HRD) to help us

regarding the collection of project materials and making the project.

Finally I take this opportunity to thank all the employees of RBI,

Bhubaneswar, my friends, my colleagues and my parents for their blessings

and good wishes.

BHISMA NARAYAN ROUT

(RBI Young Scholar)


3/41


4/41

4 | P a g e

CERTIFICATE C ertified that Shri. Bhisma Narayan Rout, Young Scholar for

the year 2010 has carried out the original project work entitled

FINANCIAL LITERACY under my guidance. It is also certified that

Shri.Rout has carried out the work to my Satisfaction and has

devoted his fullest time and efforts for completion of the project to

the satisfaction of RBI.

(A.K. Mohapatro)

Assistant General Manager

Personnel Dept.

Date:-


5/41

5 | P a g e

DECLARATION

I do hereby affirm that the project entitled FINANCIAL

LITERACY is submitted in partial fulfilment of the RBI YOUNG SCHLORS

AWARD.

The project is the result of my total exertion and hearty contribution,accomplished under the guidance of Shri. A.K. Mohapatro (Assistant General

Manager, Personnel Department, Reserve Bank Of India, Bhubaneswar) .

Bhisma Narayan Rout

(RBI Young Scholar)


6/41

6 | P a g e

CONTENTS1. What is RESERVE BANK OF INDIA

a) History b)

Management

c)

Organisationd)

Functions of RBI

TOPIC- FINANCIAL LITERACY: The Context & Concern inFinancial Education &Literacy-INDIA Specific Study

1. Financial Literacy-Background

2. Financial Literacy as a means to financial inclusion

3. Importance or Need of Financial Literacy

4. Barriers in the way of Financial Literacy

5. Financial Education : An International Experience

6. Financial Literacy: INDIAN Contexta.

Challenges in promoting a financial Literacy Programmes

b.

Possible Themesc.

Issues on Financial Literacy

d.

Scope of Financial Education

7. Financial Literacy and Reserve Bank of India

Initiatives taken by RBI8. Suggestions

9. Conclusion10. Reference

What is RESERVE BANK OFINDIA

History


7/41

7 | P a g e

The Reserve Bank of India is the central bank of the country. Central banks are a relativelyrecent innovation and most central banks, as we know them today, were established around the earlytwentieth century.

The Reserve Bank of India was set up on the basis of therecommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning

of the Bank, which commenced operations on April 1, 1935.

The Bank was constituted to* Regulate the issue of banknotes* Maintain reserves with a view to securing monetary stability and

(First RBI Building 1935,

Kolkata) * To operate the credit and currency system of the country to its advantage.

The Bank began its operations by taking over from the Government the functions so far being

performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. The existing currency offices at Calcutta, Mumbai, Chennai,Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue Department. Officesof the Banking Department were established in Calcutta, Mumbai, Chennai, Delhi and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued toact as the Central Bank for Burma till Japanese Occupation of Burma and later up to April, 1947. Afterthe partition of India, the Reserve Bank served as the central bank of Pakistan up to June 1948 whenthe State Bank of Pakistan commenced operations. The Bank, which was originally set up as ashareholder's bank, was nationalised in 1949.

An interesting feature of the Reserve Bank of India was that at its very inception, the Bank wasseen as playing a special role in the context of development, especially Agriculture. When Indiacommenced its plan endeavours, the development role of the Bank came into focus, especially in thesixties when the Reserve Bank, in many ways, pioneered the concept and practise of using finance tocatalyse development. The Bank was also instrumental in institutional development and helped set upinstitutions like the Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India, the Industrial Development Bank of India, the National Bank of Agriculture and RuralDevelopment, the Discount and Finance House of India etc. to build the financial infrastructure of thecountry.

With liberalisation, the Bank's focus has shifted back to core central banking functions like

Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments System and ontodeveloping the financial markets.

RBI LogoIn RBI logo there is a tiger in the middle which represents as the

National animal of India and there is a palm tree & the two elements arecovered with RESERVE BANK OF INDIA in English and Hindi.

Management The management of the Reserve Bank is under the control of Central Board of Directors

consisting of 20 members:


8/41

8 | P a g e

a) The executive head of the Bank is called is Governorwho is assisted by four Deputy Governors. They areappointed by the Government of India for a period of five years. The head office of the Reserve Bank is atMUMBAI.

b) There are four local boards at Delhi, Calcutta, Chennai

& Mumbai representing four regional areas, i.e.northern, eastern, Sothern and western respectively.These local boards are advisory in nature and theGovernment of India nominates one member eachfrom these boards to the Central Board.

(RBI Tower MUMBAI) c) There are ten directors from various fields and one

government official from the Ministry of Finance.The Reserve Bank of India Act, 1934 requires that there must be at least six meetings in a year

and the gap between two meetings must not exceed three months. The Governor of the Reserve Bankcan call a meeting of the Central Board whenever he feels it necessary. The Governor and the DeputyGovernors are full-time officials of the Reserve Bank and are paid prescribed salaries and allowances.Other directors are part-time officials and are given fare and allowance to participate in the meetings.

OrganisationOrganisationally, the Reserve Bank operates through

various departments. They are:

i. Customer Service Departmentii. Department of Administration & Personnel

Management

iii. Department of Banking Operations and Development

iv. Department of Banking Supervision

v. Department of Com munication

vi. Department of Currency Managem ent

vii. Department of Economic Analysis and Policy

viii. Department of Expenditure & Budgetary Con trolix. Department of External Investments and Operations

x. Department of Government and Bank Accounts

xi. Department of Information Technology

xii. Department of Non-Banking Supervision (DNBS)

xiii. Department of Payment and Settlement System

xiv. Department of Statistics and Information Managem ent

xv. Financial Markets Department

xvi. Financial Stability Unit
http://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DCShttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DBODhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DBShttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DCMhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DEAPhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htmhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DEIOhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DGBAhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DIThttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DNBShttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DPSShttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DSIMhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#FMDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#FSUhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#FSUhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#FMDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DSIMhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DPSShttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DNBShttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DIThttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DGBAhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DEIOhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htmhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DEAPhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DCMhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DBShttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DBODhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#DCS


9/41

9 | P a g e

xvii. Foreign Exchange Department

xviii. Hum an Resource Development Department

xix. Inspection Department

xx. In ternal Debt Management Department

xxi. Legal Department

xxii. Monetary Policy Department

xxiii. Premises Department

xxiv. Rajbhasha Department

xxv. Rural Planning and Credit Department

xxvi. Secretary's Department

xxvii. Urban Banks Department

Rural Planning and Credit Department

The Rural Planning and Credit Department formulates policies relating to rural credit and monitorstimely and adequate flow of credit to the rural population for agricultural activitiesand rural employment programmes. It also formulates policiesrelating to the priority sector which includes agriculture, small-scaleindustries, tiny and village industries, artisans and retail traders,

professional and self-employed persons, state sponsoredorganisations for Scheduled Castes and Scheduled Tribes andGovernment Sponsored credit-linked programmes like SwarnjayantiGram Swarojgar Yojana (SGSY), Prime Ministers Rojgar Yojana (PMRY) etc. Itimplements and monitors the Lead Bank Scheme which is aimed at forging acoordinated approach for providing bank credit to achieve overall development of rural areas in thecountry. The department also oversees implementation of the Banking Ombudsman Scheme.

(a) Broad Work Areas of the Department

Monitoring and facilitating flow of credit to rural, agricultural and small scale industries'

sectors. Framing policies on priority sector lending. Making allocations for contribution to Rural Infrastructure Development Fund (RIDF) amongst

scheduled commercial banks. Implementing and monitoring Lead Bank Scheme which aims at forging a co-ordinated

approach for providing bank credit to achieve overall rural development. Giving financial and policy support to NABARD. Acting as regulators for Regional Rural Banks and State/Central Co-operative Banks. Monitoring implementation of Government-sponsored poverty alleviation schemes. Implementation of Banking Ombudsman Scheme: A scheme set up by the Reserve Bank of

India to give members of public an easy and inexpensive forum for redressal of their

grievances against banks.
http://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#FEDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#HRDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#Inspecthttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#IDMDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#LDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#MPDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htmhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#RDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#RPCDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#SEChttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#UBDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#UBDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#SEChttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#RPCDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#RDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htmhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#MPDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#LDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#IDMDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#Inspecthttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#HRDhttp://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=Depts.htm#FED


10/41

10 | P a g e

(b) Thrust Areas

Credit delivery innovationso Micro finance initiativeso Kisan credit cards

Restructuring co-operatives Framing guidelines for rehabilitation of sick SSIs

IMPORTANT ASPECTS RELATING TO PRIORITY SECTOR LENDING BY COMMERCIAL BANKS

(i) Targets/Sub-Targets

The targets and sub-targets set under priority sector lending for domestic and foreign banksoperating in India are:

Category of advances Domestic banks Foreign banks in India

(i) Aggregate advances to prioritysector

40 per cent of net bankcredit

32 per cent of net bank credit

(ii) Advances to agriculture 18 per cent of net bankcredit

No target

(iii) Advances to weaker sections 10 per cent of net bankcredit

No target

(iv) Advances to SSI No target 10 per cent of net bank credit

(vi) Export Finance Export finance does notform part of prioritysector for domesticbanks

12 per cent of net bank credit

(ii) Activities

Broadly, the activities/ purposes financed by banks included in priority sector are:

a. Agriculture

b.

Small scale industryc. Small road and water transport operatorsd. Retail traders and small business operatorse. Professional and self-employed personsf. State-sponsored organisations for Scheduled Caste/Scheduled Tribe,g. Educational loans, upto Rs. 0.75 million for studies within the country and Rs. 1.5 million for

studies abroad.h. Housing up to Rs. 1.5 million in all areas for acquisition by individual. Rs. 0.1 million in

rural/semiurban areas and Rs. 0.2 million in urban/metropolitan areas for repairing of existingunit)

i. Consumption loans for weaker sections,j. Self Help Groups/ Non Governmental Organisations,k. Software industry (having credit limits up to Rs 10

million from the banking system)


11/41

11 | P a g e

l. Food and agro based processing sector

(iii) Weaker Sections

The catego ries of borrowers included under weaker sections are:

i. Small and marginal farmers with land holdings of five acres and less, landless labourers,tenant farmers and sharecroppers;

ii. Artisans, village and cottage industries where individual credit requirements do not exceed Rs.50,000 ;

iii. Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY), Swarna Jayanti Shahari RozgarYojana (SJSRY) and Scheme for Liberation and Rehabilitation of Scavangers (SLRS);

iv. Scheduled castes and scheduled tribes;v. Beneficiaries under the Differential Rate of Interest (DRI) scheme;vi. Self Help Groups.

Functions of Reserve Bank of IndiaNote Issue

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issuebank notes of all denominations. The distribution of one rupee notes and coins and small coinsall over the country is undertaken by the Reserve Bank as agent of the Government. The ReserveBank has a separate Issue Department which is entrusted with the issue of currency notes. Theassets and liabilities of the Issue Department are kept separate from those of the Banking

Department. Originally, the assets of the Issue Departmentwere to consist of not less than two-fifths of gold coin,gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. Theremaining three-fifths of the assets might be held in rupeecoins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due tothe exigencies of the Second World War and the post-warperiod, these provisions were considerably modified. Since1957, the Reserve Bank of India is required to maintaingold and foreign exchange reserves of Rs. 200 crores, of

which at least Rs. 115 crores should be in gold. The system as it exists today is known as theminimum reserve system.

Banker to Government The second important function of the Reserve Bank of India

is to act as Government banker, agent and adviser. The ReserveBank is agent of Central Government and of all State Governmentsin India excepting that of Jammu and Kashmir. The Reserve Bank hasthe obligation to transact Government business, via. To keep thecash balances as deposits free of interest, to receive and to makepayments on behalf of the Government and to carry out theirexchange remittances and other banking operations. The ReserveBank of India helps the Government - both the Union and the Statesto float new loans and to manage public debt. The Bank makes waysand means advances to the Governments for 90 days. It makes loansand advances to the States and local authorities. It acts as adviser to


12/41

12 | P a g e

the Government on all monetary and banking matters.

Bankers Bank

The Reserve Bank of India acts as the bankers' bank.According to the provisions of the Banking Companies Act of 1949,every scheduled bank was required to maintain with the Reserve

Bank a cash balance equivalent to 5% of its demand liabilities and 2per cent of its time liabilities in India. By an amendment of 1962, thedistinction between demand and time liabilities was abolished andbanks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirementscan be changed by the Reserve Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligiblesecurities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to theirhelp in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the

lender of the last resort.

Custodian of Exchange ReservesThe Reserve Bank is the custodian of Indias foreign

exchange reserves. It maintains and stabilises the external valueof rupee, administers exchange controls and other restrictionsimposed by the government, and manages the foreignexchange reserves. Initially, the stability of exchange rate was

maintained through selling and purchasing sterling at fixedrates, but after India became a member of the InternationalMonetary Fund (IMF) in 1947, the rupee was delinked withsterling and became a multilaterally convertible currency.Therefore the Reserve Bank now sells and buys foreigncurrencies, and not sterling alone, in order to achieve theobjective of exchange stability. The Reserve Bank fixes the selling and buying rates of foreigncurrencies. All Indian remittances of foreign countries and foreign remittances to India are madethrough the Reserve Bank.

Controller of Credit

As the central bank of the country, the Reserve Bank undertakes the responsibility of controlling credit in order to ensure internal price stability and promote economic growth. Through

this Function, the Reserve Bank attempts to achieve price stability inthe country and avoids inflationary and deflationary tendencies inthe country. Price stability is essential for economic development.The Reserve Bank regulates the money supply in accordance withthe changing requirement of the economy. The Reserve Bank


13/41

13 | P a g e

makes extensive use of various quantitative and qualitative techniques to effectively control andregulate credit in the country.

Ordinary Banking Functions

The Reserve Bank also performs various ordinary banking

functions:a) It accepts deposits from the central governments

and even private individuals without interest.b) It buys, sells and rediscounts the bills of exchange

and promissory notes of the scheduled bankswithout restrictions.

c) It grants loans and advances to the centralgovernment, state governments, local authorities,scheduled Banks and state cooperative banks,repayable within 90 days.

d) It buys and sells securities of the Government of India and foreign securities.e) It buys from and sells to the scheduled banks foreign exchange for minimum amount of Rs. 1

lakh.f) It can borrow from any scheduled bank in India or from any foreign bank.g) It can open an account in the World Bank or in some foreign central bankh) It accepts valuables, securities, etc., for keeping them in safe custody.i) It buys and sells Gold & Silver.

Supervisory FunctionsIn addition to its traditional central banking functions,

the Reserve bank has certain non-monetary functions of thenature of supervision of banks and promotion of sound bankingin India. The Reserve Bank Act, 1934, and the BankingRegulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operativebanks, relating to licensing and establishments, branchexpansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBIis authorised to carry out periodical inspections of the banksand to call for returns and necessary information from them.

The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed newresponsibilities on the RBI for directing the growth of banking and credit policies towards morerapid development of the economy and realisation of certain desired social objectives. Thesupervisory functions of the RBI have helped a great deal in improving the standard of bankingin India to develop on sound lines and to improve the methods of their operation.

Promotional Functions

With economic growth assuming a new urgency since Independence, the range of theReserve Bank's functions has steadily widened. The Bank nowperforms a variety of developmental and promotionalfunctions, which, at one time, were regarded as outside thenormal scope of central banking. The Reserve Bank was askedto promote banking habit, extend banking facilities to rural


14/41

14 | P a g e

and semi-urban areas, and establish and promote new specialised financing agencies.Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up theDeposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the IndustrialDevelopment Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963and the Industrial Reconstruction Corporation of India in 1972. These institutions were set updirectly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, andto provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank

of India set up the Agricultural Credit Department to provide agricultural credit. But only since1951 the Bank's role in this field has become extremely important. The Bank has developed theco-operative credit movement to encourage saving, to eliminate moneylenders from the villagesand to route its short term credit to agriculture. The RBI has set up the Agricultural Refinanceand Development Corporation to provide long-term finance to farmers.

Financial LiteracyBackground

Financial education or Financial Literacy can broadlybe defined as the capacity to have familiarity with andunderstanding of financial market products, especially rewardsand risks in order to make informed choices. Viewed from thisstandpoint, financial education primarily relates to personalfinancial education to enable individuals to take effective actionsto improve overall well-being and avoid distress in matters thatare financial.

Organization for Economic Co-operation andDevelopment (OECD) has defined financial education as 'theprocess by which financial consumers/ investors improve their understanding of financial products,concepts and risks, and through information, instruction and/or objective advice, develop the skillsand confidence to become more aware of financial risks and opportunities, to make informed choices,to know where to go for help, and to take other effective actions to improve their financial well-being.

The focus of any discussion on financial education is primarily on the individual, who usuallyhas limited resources and skills to appreciate the complexities of financial dealings with financialintermediaries on matters relating to personal finance on a day-to-day basis. The process of economicreforms, which includes deregulation and mercerisation, should have educating and empowering thecommon person to participate in the financial marketplace with knowledge and confidence, as acritical component of public policy.


15/41

15 | P a g e

The need for financial education is felt in the developed and the developing countries alike. Inthe developed countries, the increasing number and complexity of financial products, the continuingshift in responsibility for providing social security from governments and financial institutions toindividuals, and the growing importance of individual retirement planning make it imperative thatfinancial education be provided to all.

In the developing countries also, the increasing participation of a growing number of

consumers in newly developing financial markets will necessitate the provision of financial education if these markets are to expand and operate efficiently. In addition, the substantial growth of international transactions during the last decade, resulting from new technologies and the growinginternational mobility of individuals, makes the improvement in financial education, increasingly, aninternational concern.

From a regulatory perspective, financial education empowers the common person and thusreduces the burden of protecting the common person from the elements of market failure,attributable to, de facto, information asymmetries. For example, the emphasis on market discipline, asone of the three pillars of banking regulation, especially under Basel II, is best served by participationof financially literate bank customers in the financial marketplace.

Financial education can make a difference not only in the quality of life that individuals canafford, but also the integrity and quality of markets. It can provide individuals with basic tools forbudgeting, help them to acquire the discipline to save and thus, ensure that they can enjoy a dignifiedlife after retirement. Financially educated consumers, in turn, can benefit the economy by encouraginggenuine competition, forcing the service providers to innovate and improve their levels of efficiency.

Todays complex financial services market offers consumers a vastarray of products and providers to meet their financial needs. This degree of choice requires that consumers be equipped with the knowledge and skillsto evaluate the options and identify those that best suit their needs andcircumstances. This is especially true for populations that have traditionallybeen underserved by our financial system. Financial education is alsoessential to help consumers understand how to prevent becoming involvedin transactions that are financially destructive.

Financial literacy is considered an important adjunct for promoting financial inclusion andultimately financial stability. Both developed and developing countries, therefore, are focusing onprogrammes for financial literacy/education.

In India, the need for financial literacy is even greater considering the low levels of literacy

and the large section of the population, which still remains out of the formal financial set-up. In thecontext of 'financial inclusion', the scope of financial literacy is relatively broader and it acquiresgreater significance since it could be an important factor in the very access of such excluded groups tofinance. Further, the process of educating may invariably involve addressing deep entrenchedbehavioural and psychological factors that could be major barriers. In countries with diverse social andeconomic profile like India, financial literacy is particularly relevant for people who are resource-poorand who operate at the margin and are vulnerable to persistent downward financial pressures. Withno established banking relationship, the un-banked poor are pushed towards expensive alternatives.The challenges of household cash management under difficult circumstances with few resources to fallback on, could be accentuated by the lack of skills or knowledge to make well informed financialdecisions. Financial literacy can help them prepare ahead of time for life cycle needs and deal withunexpected emergencies without assuming unnecessary debt.


16/41

16 | P a g e


17/41

17 | P a g e

Financial Literacy as a mean to Financial Inclusion

Basically financial education is the supply side and financial inclusion is the supply side. Whenthe awareness for financial education will be created among the people then they can be financiallyincluded. It can be better understandable by the help of such diagram.

o{Demand side (Financial Inclusion)}

This diagram shows that the relation between Financial education and financial literacy. Whenmore people are financially educated then more people will be financially included.

In the context of 'financial inclusion', the scope of financial education is relatively broader andit acquires greater significance since it could be an important factor in the very access of suchexcluded groups to finance. Further, the process of educating may invariably involve addressing deepentrenched behavioural and psychological factors that could be major barriers. However, the

complementary relationship between microfinance and financial education is obvious and financialliteracy can increase the decision making power and prepare them to cope with the financial demandsof daily life.

In countries with diverse social and economic profile like India, financial education isparticularly relevant for people who are resource poor and who operate at the margin and arevulnerable to persistent downward financial pressures. With no established banking relationship, theun-banked poor are pushed towards expensive alternatives. The challenges of household cashmanagement under difficult circumstances with few resources to fall back on could be accentuated bythe lack of skills or knowledge to make well informed financial decisions. Financial education can helpthem prepare ahead of time for life cycle needs and deal with unexpected emergencies withoutassuming unnecessary debt.

As per an OECD study2, the provision of education programmes for the un/under banked groups canplay important roles:_ They can encourage un/under banked consumers to enter into or make better use of the financialmainstream,_ They can help to retain them as successful account holders in the short term and_ They can contribute to keeping them as savers for the long-term.

_ They can contribute to asset building among households

Importance of Financial Literacy

Supply Side

(financial

Education)


18/41

18 | P a g e

Financial education is increasingly important, and not just for investors. It is becomingessential for the average family trying to decide how to balance its budget, buy a home, fund the

childrens education and ensure an income when the parents retire.

Of course people have always been responsible for managing theirown finances on a day to day basis spend on a holiday or save for newfurniture; how much to put aside for a childs education or to set them upin life but recent developments have made financial education andawareness increasingly important for financial well-being.

For one thing, the growing sophistication of financial markets means consumers are not justchoosing between interest rates on two different bank loans or savings plans, but are rather beingoffered a variety of complex financial instruments for borrowing and saving, with a large range of

options. At the same time, the responsibility and risk for financial decisions that will have a majorimpact on an individuals future life, notably pensions are being shifted increasingly to workers andaway from government and employers. As life expectancy is increasing, the pension question isparticularly important as individuals will be enjoying longer periods of retirement.

Individuals will not be able to choose the right savings or investments for themselves, andmay be at risk of fraud, if they are not financially literate. But if individuals do become financiallyeducated, they will be more likely to save and to challenge financial service providers to developproducts that truly respond to their needs, and that should have positive effects on both investmentlevels and economic growth.

There is virtually no country whose economy has developed and matured without acorresponding deepening of the financial sector. And such deepening is possible only whenindividuals and households are financially literate and are able to make informed choices about howthey save, borrow and invest. Indeed, it is possible to argue that the subprime problem would nothave grown to the explosive proportions that it did if people had been financially more literate.

Beyond the individual level - and this is equally important - greater financial literacy can aid abetter allocation of resources and thereby raise the longer-term growth potential of the economy.India clocked average growth of around nine percent in the period 2004-08 before the global financialcrisis interrupted the growth trajectory. One of the key drivers of this growth has been the increasedsavings rate in the economy, which reached a high of 36 percent of GDP in 2007/08, the year beforethe crisis.

Todays financial world is highly complex when compared with that of aGeneration ago. Forty years ago, a simple understanding of how to maintain a

Checking and savings account at local banks and savings institutions may have beenSufficient. Now, consumers must be able to differentiate between wide ranges of

Financial products and services, and providers of those products and services.Previous, less-indebted generations may not have needed a comprehensive

Understanding of such aspects of credit as the impact of compounding interest and The implications of mismanaging credit accounts.


19/41

19 | P a g e

The increase in savings itself has been a consequence of the changing demographics and thewelcome trend of rise in household savings. However, nearly half ourpopulation still lacks access to banking and other financial services. If wecan redress that and provide this left behind population access to theentire gamut of banking services, we could raise household and overalldomestic savings even further, and that will fulfil one of the necessary

conditions to achieve the double-digit growth that we aspire to.

To make that happen, we need to deepen the penetration andexpand the coverage of financial services to all sections of society and to all regions of the country ina meaningful way, particularly to those at the bottom of the economic pyramid. Lack of financialawareness and literacy is one of the main reasons behind lack of access to financial products or failureto use them even when they are available. An NCAER and Max New York Life study shows that inIndia, around 60 percent of labourers surveyed indicated that they store cash at home, whileborrowing from moneylenders at high interest rates - a pattern which increases their financialvulnerability.

Financial literacy and awareness are thus integral to ensuring financial inclusion. This is notjust about imparting financial knowledge and information; it is also about changing behaviour. For theultimate goal is to empower people to take actions that are in their own self-interest. Whenconsumers know of the financial products available, when they are able to evaluate the merits anddemerits of each product, are able to negotiate what they want; they will feel empowered in a verymeaningful way. They will know enough to demand accountability and seek redressal of grievances.This, in turn, will enhance the integrity and quality of financial markets. One big lesson is that financialliteracy is not just a public good; it is a merit good. What this means is that by deepening financialliteracy, not just individuals and households, even the society at large stands to benefit.

Financial education is important to both the security of individuals and the security of nations.Enlightened societies today strive to ensure social cohesion as an integral part of economic

progress. Interesting and well-paid jobs are central pillars of social cohesion, but so are savings andthe building of capital to provide individuals with financial security, especially for their retirement.

That cohesion can be seriously undermined by major imbalances of wealth within nations.Major inequalities between elements of society, especially along ethnic or racial lines, can be a recipefor disaster. One way to avoid that catastrophic scenario is to ensure that everyone participates inwealth, both in its creation and distribution. Along with good employment prospects, financialeducation can play a key role in helping individuals and families build their assets.

Just as health education in primary and secondary schools helps children develop good life-long dietary and hygiene habits, good financial education can provide them with the skills and habitsnecessary to enable them to participate sensibly in financial markets. Moreover, well-informedfinancial consumers ultimately lead to better financial markets, where rogue products are forced fromthe market-place and confidence is raised.

To conclude, financial education has a role to play in somany critical areas of everyday life:

Financing home ownership; Financing higher education; Financing retirement security; Making people more astute when saving and investing;


20/41

20 | P a g e

Protecting individuals from those who prey upon the ignorance and greed of the unwary.

As in health, the state often becomes the protector of last resort, ensuring a minimum socialsecurity net for the poor. Financial education should reduce those numbers and the burden on thetaxpaying public.

Financial Literacy: An International

ExperienceIt has been said; particularly in the context of the developed economies that while the young

do not save enough and do not fully understand the need for investments for future, many of theelderly tend to feel the pinch of poverty. In this background, priority needs to be accorded to financialliteracy.

An international OECD study was published in late 2005 analyzing financial literacy surveys in OECDcountries. A selection of findings included:

In Australia, 67 per cent of respondents indicated thatthey understood the concept of compound interest, yetwhen they were asked to solve a problem using theconcept only 28 per cent had a good level of understanding.

A British survey found that consumers do not activelyseek out financial information. The information they do receive is acquired by chance, forexample, by picking up a pamphlet at a bank or having a chance talk with a bank employee.

A Canadian survey found that respondents considered choosing the right investments to bemore stressful than going to the dentist.

A survey of Korean high-school students showed that they had failing scores - that is, theyanswered fewer than 60 per cent of the questions correctly - on tests designed to measuretheir ability to choose and manage a credit card, their knowledge about saving and investingfor retirement, and their awareness of risk and the importance of insuring against it.

A survey in the US found that four out of ten American workers are not saving for retirement.

In Israel, a study is underway into current financial literacy.


21/41

21 | P a g e

So for solving these problems different countries have taken important decisions and opened manyinstitutions. Such of the examples are :-

IN U.K In the UK, the Financial Services Authority (FSA) has launched the biggest ever campaign to

improve the financial skills of the population and imparting education to enable a better appreciation

of the risks and rewards inherent in financial instruments.

IN U.S.The US Treasury established its Office of Financial Education in 2002. The Office works to

promote access to the financial literacy tools that can help all US citizens make wiser choices in allareas of personal financial management, with a special emphasis on saving, credit management, homeownership and retirement planning. The Financial Literacy and Education Commission(FLEC),established by the Congress in 2003 through the passage of the Financial Literacy andEducation Improvement Act, was created with the purpose of improving the financial literacy andeducation of persons in the United States through development of a national strategy to promote

financial literacy and education. The Federal Reserve, along with numerous other federal Governmentagencies, is a member of this commission, which is supported by the Office of Financial Education.

The Federal Reserve Systems recently redesigned financial education website,FederalReserveEducation.org , is dovetailed to increase the use of Federal Reserve educationalmaterials and promote financial education in the classroom. The website has material intended for thegeneral public, as well as materials specifically geared toward teachers and high school and collegestudents. It provides easy access to free educational materials, a resource search engine for teachers,and games for various ages and knowledge levels. The other regional Feds also have variousinteractive on-line programmes on their website designed to generate awareness about better

financial management and assessment of one's own financial position.

IN AUSTRALIAIn Australia, the Government established a National Consumer and Financial Literacy

Taskforce in 2002, which recommended the institution of the Financial Literacy Foundation in 2005.

Working closely with states and territories, the Foundation has produced a NationalCurriculum Framework for Financial Literacy to provide benchmarks for teaching the school childrenthe importance of managing their money. The foundation works in partnership with government,industry and community organisations in providing a national focus for financial literacy issues. ItsAdvisory Board is responsible for contributing independent and strategic guidance on financialliteracy issues.

IN MALAYSIAIn Malaysia, the Financial Sector Master Plan, launched in 2001, includes a 10-year consumer

education program. This agenda includes infrastructure and institutional capacity development in theareas of financial literacy, advisory services, distress management and rehabilitation. For this purpose,the Bank Negara Malaysia in partnership with the financial industry and other government agencies,has introduced the Financial Mediation Bureau, Deposit Insurance Scheme, Basic Banking ServicesFramework as well as created a new class of licensed Financial Advisers. Savings and literacy programsare also being promoted in schools. A one-stop centre has recently been established within thecentral bank for the public to obtain information about financial services in Malaysia and to provide


22/41

22 | P a g e

face-to-face customer service on general enquiries and complaints. These initiatives have beenreinforced by high levels of transparency and disclosure.

Organization for Economic Co-operation and Development (OECD)Above all, The Organization for Economic Co-operation and Development (OECD) has been

taking a pro-active initiative in generating awareness about financial

literacy. It has recently released a major international study onfinancial literacy titled 'Improving Financial Literacy' encompassingpractical guidelines on good practices in financial literacy andawareness. These guidelines, in the form of a non-bindingrecommendation, are designed to help countries devise andimplement effective financial literacy programmes, drawing from thebest practices in this area in OECD countries.

They promote the role of all the main stakeholders in financial literacy: governments, financialinstitutions, employers, trade unions and consumer groups. In addition, they also draw a clear

distinction between public information provided by the government and regulatory authorities, andthat supplied by the financial analysts.

It is also important to devise ways to ascertain whether financial literacy has achieved itsobjective, such as generating increased consumer awareness or a changed behaviour, a point willreturn to a little later. The balance of evidence, however, suggests that such programmes tend to beeffective. For instance, in the United States, it has been observed that workers increase theirparticipation in retirement savings plans funded by employee and employer contributions when thelatter offers financial literacy programmes, whether in the form of brochures or seminars. Consumerswho attend one-on-one counselling sessions on their personal finances have fewer delinquencies.

Financial Literacy: INDIAN Context Prior to the initiation of financial sector reforms in the early 1990s, the Indian financial system

essentially catered to the needs of planned development. Customers had little choice in financialinstruments. The segmented and underdeveloped financial markets meant that their exposure to riskwas also limited. In such a situation, customers could employ their basic skills to investing simplefinancial products with assured returns, unconcerned about their risks. The relevance of financialliteracy was, at best, limited.

Pursuant to the process of globalisation, the economic and financial landscape in India isundergoing a significant transformation. In the process, the economy has become more diversifiedwith new sources of growth. In tandem with these changes, it has been seen that modernisation of thefinancial sector that has also become increasingly more diversified to meet the new requirements of

the economy. The financial sector has also increasingly leveraged on advances in technology whichhas significantly changed the way financial business is being conducted. As market advances continue


23/41

23 | P a g e

to expand the range of financial products and services, consumers are being faced with increasinglymultifaceted choices and options in the management of their personal finances and exposure to agamut of risks. In this complex financial landscape, it becomes important for consumers to haveimproved access to information.

Significant changes have also occurred in the social sphere. While on the one hand, costs of literacy have increased substantially, the longevity levels have also risen, on the other. Taken together,this implies that the elderly are now required to achieve a constant rebalancing of their consumptionand investment portfolios. The increased life expectancy has also compelled employers to move awayfrom ad hoc funded superannuation schemes to defined contribution schemes. At the same time, theadvances in information technology have lowered the costs of information acquisition and processingas also of searching a job. This, in turn, has significantly raised job mobility with attendant implicationsfor family size and expenditure patterns.

Financial literacy assumes importance in this changed financial environment. In consideringmeans to improve the financial status of families, financial literacy can play a critical role by equippingconsumers with the knowledge required to choose from a myriad of financial products and providers.In addition, financial literacy can help provide individuals with the knowledge necessary to createhousehold budgets, initiate savings plans, manage debt, and make strategic investment decisions fortheir retirement or for their children's education. Being educated financially also enables individuals tobetter appreciate the possible contingencies and save for a rainy day, in an appropriate manner. It canempower consumers to become better shoppers, allowing them to procure goods and services atlower cost. This process, in turn, raises consumers' real purchasing power and multiplies theopportunities for them to consume, save, or invest. Having these basic financial planning skills canhelp families to meet their near-term obligations and maximise their longer-term financial well-being.

Financial literacy is also an integral component of customer protection. Despite concertedefforts, the current state of transparency coupled with the difficulty of consumers in identifying andunderstanding the fine print from the large volume of convoluted information, leads to an informationasymmetry between the financial intermediary and the customer. For example, customers are oftenpenalised for minor violations in repayments, although they have limited redressal mechanisms torectify deficiencies in service by banks, rendering the banker-customer relationship one of unequal. Inthis relationship, it is the principal, that is, the depositor, who is actually far less powerful than theagent, that is, the bank. The representations received in regard to levying of unreasonably high serviceor user charges and enhancement of user charges without proper and prior intimation, and thegrowing number of customer complaints against the banks, also testify to this fact. In this context,

financial literacy may help to prevent vulnerable consumers from falling prey to financially disquietingcredit arrangements.

Need of Financial Literacy in IndiaAs per a comprehensive survey of over 63,000 Indian households to understand how India

earns, spends and saves:

A rural households total annual expenditure, including both routineand unusual expenditure, amounts to Rs 41,000, resulting in a surplusincome of roughly about Rs 11,000. An urban household in contrast has asurplus income of Rs 25,000. The survey also highlights disparities in saving


24/41

24 | P a g e

habits. Levels of income, expenditure and saving related behaviour are linked to the age, educationlevels and type of engagement of chief earner.

Salary and wage earners account for a low share of the total households (18.4%) but highestshare of the total earnings (30.8%) with an annual income of Rs 109,000. After taking care of totalexpenses of Rs 76,000, these households have surplus income of about 30% of their income.

By contrast, a third of households earn their income from labour, but this groups share in thetotal earnings is only 16% and has surplus income just about 7.7% of their income. Similarly,households with chief earner in late middle age (46-55 years) accounting for 21% of all householdshave the highest surplus income (Rs 19,000 per annum) among all other age groups which is about24%of total income.

The findings of this Survey clearly brought about a need for financial literacy in Indianhouseholds. An astounding 96% of Indians across rural and urban India felt they would not survive formore than a year in case of loss of their major source of income. However, when asked how confidentthey were about their financial stability, an overwhelming 54% answered in the affirmative. This

misplaced financial optimism in most cases stemmed from knowing they had the support of a jointfamily system. However, this is and will not hold true in a fast-changing social fabric amongst Indianhouseholds.

More than half of the Indian households prefer to save by keeping their surplus income incommercial banks. However, more than a third of Indians simply prefer to keep their surplus money athome. Households opting for post-office deposits account for just 5%.

While top 20% of income earners save up to 44% of their income, the bottom 20% borrowsup to 33%. Although financial institutions (a bank or cooperative) constitute the main source of

borrowing, a significant proportion of Indian households rely on informal sources principally themoney-lender in rural India to make ends meet. Almost 40% of rural Indian households and a fourthof urban Indian households borrow from the money-lender to meet expenditures such as health,medical treatment and routine household expenditure.

Findings broadly confirm the fact that Indian households are in the habit of saving out of household income, and also that they are fundamentally optimistic about their financial future. Yet, foralmost a quarter of households across the income spectrum, current income is insufficient for theirroutine and unusual expenditure, creating a need for a reserve of financial assets for them to fall backupon.

At the same time their awareness of strategic financial planning is relatively primitive. Whilegovernments have a role to play for the poorest households, in general, financial security is theresponsibility of each household, and both the needs and the options available are more complextoday than before. The survey points to a tremendous need for enhancement of financial literacy andeducation of households to do better in achieving lasting financial security.

Challenges in delivering financial education

Devising financial education initiatives forthe un/under banked has to take into account the

existing financial landscape, the social economic


25/41

25 | P a g e

realities of this class and the fact that invariably, such groups are beset with low literacy levels.The main difference in the financial planning for the poor families is that they have fewer

resources and opportunities. When people are struggling to make ends meet on a day-to-day basis,good money management becomes a daily challenge. While they use many creative ingenuousstrategies to manage their money, these often develop through trial and error rather than by design.Financial education has a role in "building the capacity of the poor to gain control, become proactive,use information and resources to enhance their economic security and more effectively use financial

services". When better-informed clients become better consumers of financial services, financialinstitutions benefit.

Further, as already mentioned, the process of educating may invariably involve addressingdeep entrenched behavioural and psychological factors that could be major barriers. For example, incase of many of the microfinance initiatives operating on the 'group liability' concept it could be agreat challenge to drive home the very basic rationale for such an arrangement, starting frominculcating the habit of small savings to appreciation of the concept of 'collective responsibility'.

A study regarding Mexican experience has highlighted that the social and cultural factorsembedded in the financial landscape greatly influence the ability of individuals to use financialservices effectively. Results indicate that in addition to material resources, the inherent nature of socialrelations and community links played a crucial role in improving access to and use of financial

services. The transformation of financial information, knowledge, experience, attitudes and socialrelationships into financial education and sophistication constituted a cognitive resource to reducingvulnerability. This leads us to suggest that a culture of finance is an important catalyst for individualschange and development.

It is also important to note that financial education may contribute to behaviour modification,but many factors lend to influence a persons financial behaviour. Contrary to common belief,motivation is cultivated internally and rarely can be cultivated sustainably, at least by an externalfactor. The biggest obstacle to financial education is motivating individuals to pursue it. In otherwords, financial education does not necessarily motivate individuals; motivation brings individuals tofinancial education. Here the role of banks assumes importance as financial counsellors of the clients.

Educational System of Our CountryThe Education system in India is very complicate. In India Education is job oriented. From thechild hood of a boy it is taught to him that what he should learn and what course he read etc. It is themain weak point in Indian educational system, There are a few schools which provides the how to savemoney and how can be they invest it from childhood. In India the school children think that Bank isonly for adults, there is no need for them in banks, because they dont know what is the basicfunctions of Bank, what a bank does etc. There are certain demerits of Indian educational system suchare:-

The education is based more on rote memorization rather than understanding the subject. It doesn't promote creativity in the student. A lot of stress is on students to study for exams.

There is a need of outstanding revolution in the educationalsystem, when all school and college children have own their bankaccounts. Financial Education means not only educate thepeoples but also give them a comfortable life which they desire.

Possible themesInspire of the above challenges, it should be possible to arrive at a set of basic themes/issues

that could be addressed effectively through a financial education program. As per a study conductedby the under the project "Financial Education for the Poor" by Microfinance Opportunities, amicroenterprise resource centre, a consistent demand was found for the following broad themes of

financial education: _ Money Management: How to proactively manage money


26/41

26 | P a g e

_ Debt Management: How to control debt and avoid over-indebtedness _ Managing Savings: How to save regularly and in a safe location _ Financial Negotiations: How to strengthen clients' bargaining position vis--vis

input suppliers, other household members, and financial institutions _ Use of Bank Services: How banks work and impose charges; How clients can

maximize bank services, interact with banks, and effectively use ATMs

An analysis of such programs in the OECD countries reveals that many educationalprogrammes are integrated into the provision of specific financial services, such as first or basic bankaccounts, checking and savings accounts and matched-savings plans while others adopt a broadstand-alone approach, teaching budgeting, savings and credit management, etc., with no connectionto any product of service. Aims tend to vary according to the majority target population.

_ for the generic unbanked, aims are to explain the benefits and use of bank accountownership and services or to build up fundamental financial literacy skills.

_ for low/moderate-income underserved consumers, most programmes offer adviceon general money and credit management; whereas others have a specific goal or areembedded in schemes to encourage savings, asset-building and homeownership.

These initiatives aim to build economic empowerment and increase long-term self-sufficiency

in order to revitalize and stabilize disadvantaged communities.

Issues on Financial LiteracyOne of the major barrier in the way of delivery of financial services is the lack of basic

knowledge and lack of awareness of the products and services available from the banks. It isimportant to note that the Financial Inclusion Task Force of the United Kingdom, one of the pioneersto talk of financial inclusion, has identified 'access to free face-to-face money advice' as an importantcomponent of financial inclusion, apart from 'access to banking' and 'access to affordable credit'.People need information and advice when they either save their money or get into debt. Suchinformation and guidance can best be delivered by appropriate mechanisms and if such effective

mechanisms are put in place through the banks, they in turn would reinforce the demand for financialservices.

Another impediment is the difficulty or the lack of ease of addressing issues that affect acommon man. Despite concerted efforts, the current state of transparency coupled with the difficultyof consumers in identifying and understanding fine print information leads to an informationasymmetry between the financial intermediary and the customer. It is important to understand thatthe lack of such awareness in itself amounts to risk; and the challenge is to make customers aware of the various risk. In terms of promoting financial inclusion, much of the work is simply in providingeasily understood information in a safe and engaging environment.

Scope for Financial Education in India

Undoubtedly, there is a role for promoting financial education in the context of developmentpolicies and programs to reduce vulnerability and expand opportunities for the poor. To this end,there is a need to explore the potential for integrating financial literacy into various types of development programs: microfinance, vocational education, skills training, business development,health, and nutrition, agriculture, and food security programs. In the late 1990s a move in the UK andUS to have all Government payments made electronically contributed to heightening the importanceof financial exclusion as a policy concern. Electronic government payments have made having a bankaccount essential in order to receive payments and benefits. This has made it all the more importantfor unbanked consumers to access information on basic bank accounts savings accounts and otherfinancial services. Financial education programs would be required to access information on financialservices.


27/41

27 | P a g e

In India too, improved technology will enable, for example, Governments to make allpayments, including under various schemes electronically. I understand that in Andhra Pradesh, theState

Government has taken initiative to make payments thorough e-seva. Other states have alsolaunched such initiatives. Governments should now explore the possibility of direct credit to bankaccounts. Eventually, part of the funds received by the beneficiary under various government schemesand deposited with the banks can form part of the seed capital for forming Self Help Groups (SHGs)

for such beneficiaries. While some banks have on their own taken steps to provide such education,any large scale delivery of financial education needs to leverage on the experience and expertise of other agencies, such as private entities, non-governmental organizations, civil society organizations,outlets of the corporate sector etc., apart from Government initiatives, wherever available.

The use of information technology offers a lot of promise in providing financial literacy andeducation and experience in several parts of the country through the use of rural information kiosks,mobile vans, etc. which have shown to what extent IT can be leveraged to provide information onvarious products and services. Information kiosks can be run by the Business

Correspondents or installed in PCOs, etc. to disseminate information about not only bankingproducts, but also other useful information like input/output prices, insurance products, healthservices, weather information, etc. Such variety of knowledge would help in better risk mitigation,

lesser documentation hassles while sanctioning loans, etc. The kiosks need not even have anyconnectivity and the service personnel can perform most of the updating through electronic medialike CDs. Banks can provide funds for setting-up such kiosks and meeting the running costs or thecost can be shared among banks, and the other organizations involved in the process. Some non-banking initiatives are also being experimented in various parts of the country. In this context, theproject on financial counselling service for poor self-employed women in India started by SEWA is wellknown. Project tomorrow, as it is called, was started in 2001 with a purpose to develop and test afinancial counselling curriculum to help participants manage money productively, plan ways toincrease assets, address life cycle events, and manage risks. Through this project, SEWA has set up atraining unit and training delivery system and is developing tools and procedures to monitor thecounselling work. The project began with market research to assess the needs and demand among

SEWA clients for financial education, followed by a 'training of trainers' course. SEWA is now providingfinancial counselling to its clients through a weekly course. The initial experience suggests thatparticipants grasp the concepts presented and welcome new perspectives stemming from suchtraining.

While talking about financial education, it is important that the focus also extends to theurban populace, including the literate masses, which may not be having the financial acumen,technology suaveness and may not be 'financially literate'. It is not that the urban masses arewell versed in the Internet Banking and other newer methods of banking; there continues toremain a segment, which either avoids using the services due to lack of confidence or remainsunaware of the options available. Financial education to such target group would be mutuallybeneficial.

Finally, the concept of financial education could ideally be stretched to cover economic education aswell. At a broader societal level, given the path of economic reforms India has embraced since theearly nineties, and the ensuing debates, it is imperative that the society and general populace beobjectively informed about the fundamental economic issues and the rationale for, at-times difficult,choices to be made in this regard. This could go a long way in creating an informed and harmoniousdemocracy.


28/41

28 | P a g e

Initiatives taken by Reserve Bank of India towards Financial Education

The RBI, on its part, wishes to advance the cause of financial education in our country as partof an overall strategy. The strategy pursued in this regard can be elucidated as follows. Concerted

efforts are underway to expand the reach of formal finance in view of recent emphasis on financialinclusion. This needs to be buttressed with financial education to generate greater customerawareness and understanding of financial products and services. Concurrently, a process of creditcounselling is being encouraged to help all borrowers, but particularly those in distress to overcomecurrent financial problems and gain access to the structured financial system.

The Banking Codes and Standards Board of India (BCSBI) has also been instituted which isexpected to ensure that the banks formulate and adhere to their own comprehensive code of conductfor minimum standards of banking services, which individual customers can legitimately expect. Andfinally, a Banking Ombudsman Scheme has been instituted for redressal of grievances againstdeficient banking services, covering all the States and Union Territories.

The RBI has also been exploring the possibility of instituting a Depositor Protection Fund(DPF). The Fund can be utilised towards generating greater awareness for the common man on issuesrelating to financial education and counselling. This could be complemented with providing greaterrole to our Regional Offices to promote financial education in their respective jurisdictions.

Project Financial Literacy In India, the need for financial education is even greater considering the low levels of literacy

and the large section of the population, which is still out of the formal financial set-up. Towardsthis end, the Reserve Bank of India (RBI), with the objective of disseminating information on theCentral Bank and general banking concepts to various target groups including school and collegestudents, has undertaken an initiative titled 'Project Financial Literacy.' The project also aims toeducate women, rural and urban poor, defence personnel and senior citizens on general bankingconcepts.

Recently, a pilot programme has been launched on financial literacy in Karnataka. Theprogramme, launched by RBI in collaboration with the state government, will involve introduction of financial and related material in the curriculum of schools and colleges. Significant steps would also be

taken to make financial literacy a part of non-formal education.Children, today, are not money-smart and hence, it is imperative to teach them the basic

concepts of banking that would be useful for them in life. As a part of the project, RBI visit variousschools across India and hold various activities for students to sensitise them on financial concepts.

Project financial literacy has two segments.First one is concerned with general topics designed to acquaint people with the basics of banking, finance, markets, banking products and facilities.And the second one aims at familiarising people with the functioning of our Central Bank inareas like monetary policy, currency management, forex management, public debtmanagement and other similar topics."


29/41

29 | P a g e

Elements of Project Financial LiteracyThere are certain tools are provided by Reserve Bank of India towards Financial Literacy Such as:-

Financial Education Series (FES) Books

The financial education series books seek to educate the common man about banking,

deposit and loan facilities available and also about general financial matters from more information onfinancial education series books at rbi.org.in.

Some of the financial education series books are:- Raju and the money tree Money kumar and the monetary policy Old man monetary Raju and the sky ladder Raju and the magical goat Money kumar and carrying for currency

The FES books has been designed to be implemented in twomodules, one module in which Money Kumar will familiarisepeoples with the role and functions of the Reserve Bank of India; and through the other module, Raju will introduce themto banking concepts.

Website For Common manReserve Bank of India has made a link in its website named Common man. This site is

available in 13 regional language including Hindi and English.

It provides knowledge about

The role and functions of RBIHow is Indias central bank relevant to the peopleRBI regulationsSolve the FAQ of peoplesProvides information how to compliant againstcommercial banks as well as central bank.It also provides information on money, banking andfinance

This is a copy of the site for common man:-


30/41

30 | P a g e

RBI young scholarship award schemeTo encourage learning about the Reserve Bank of India (RBI) among the

youth of the country, the RBI conducts a major awareness and sensitizationexercise on the role of the Reserve Bank and the banking system across thecountry. This exercise, the RBI Young Scholars Award Scheme , exposesyoungsters to an actual banking and financial environment and inculcates a senseof pride in the selected ones of having had the opportunity to associate them with a prestigiousorganisation, the central bank of the country.

Currency Note PostersThe Reserve Bank of India provides currency note posters which name is Know Your Bank

Note. In this link RBI provides the security features of Indian currency Notes. These are from RS.10 toRs.1000 in all regional language.

Such copy of the currency note posters are:-


31/41

31 | P a g e

Credit Counselling CentresJuly-September, 2007 The absence of proper financial counselling, coupled with inadequate financialliteracy levels has often resulted in pushing the consumers towards costlier options and eventual debttraps. Thus, there is a need for financial counselling in all the areas.

A few banks have taken initiatives to start some centres in rural/ semi urban areas, whichoffer financial education and credit counselling services. The objective of these centres is to advisepeople on gaining access to the financial system including banks, creating awareness among thepublic about financial management, counselling people who are struggling to meet their repaymentobligations and help them resolve their problems of indebtedness, helping in rehabilitation of borrowers in distress, etc. Some of these Credit Counselling Centres (also known as KnowledgeCentres) even train farmers/ women groups to enable them to start their own income generatingactivities to earn a reasonable livelihood.

The Working Group (Chairman: Prof.S.S.Johl) constituted by the Reserve Bank to suggestmeasures for assisting distressed farmers had recommended that financial and livelihood counsellingare important for increasing the viability of credit. Further, the Working Group constituted to examineprocedures and processes for agricultural loans (Chairman: Shri C.P.Swarnkar) had also recommendedthat banks should actively consider opening of counselling centres, either individually or with pooledresources, for credit and technical counselling with a view to giving special thrust in the relatively


32/41

32 | P a g e

under-developed regions. In the light of the recommendations of these two groups, the convenorbanks of the State / Union Territory Level Bankers' Committees were advised in May 2007 to set up,on a pilot basis, a financial literacy-cum-counselling centre in any one district in the State/ UnionTerritory, coming under their jurisdiction. Further, on the basis of the experience gained, the LeadBanks concerned were advised to set up such centres in other districts.

To conclude, economic and financial sector reforms have placed higher disposable incomeswith the public. Availability of a variety of new financial products on both, credit and investment sides,

which are provided by a host of financial intermediaries has necessitated that the investing publicunderstands the nuances of each product and product supplier, and takes an informed decision aboutwhere he should invest. At the same time, those who are not part of the formal financial system needto be educated about banking and why they should have a relationship with banks. Financialeducation is considered an important element for promoting financial inclusion and ultimatelyfinancial stability. Financial education would benefit the financially-excluded by enabling them tounderstand the benefits and the ways to join the formal financial system. It could also benefit thefinancially-included by helping them make informed choices about the products and services availablein the market to their best advantage.

Initiatives taken by regional RBI offices in India

Hyderabad Regional Office

Hyderabad office of the Reserve Bank has formulated a multi-modal (informative displaythrough posters, brochures, multi-media presentations, video films, demonstrations, computergames), multi-lingual (English, Hindi, Telugu and Urdu) and customised interactive strategies (likestalls in exhibitions, visits to schools, colleges, villages, meeting with bankers, traders, farmers, SHGs,tour of the Reserve Bank) for spreading financial literacy among the common persons in general andschool children, college students, farmers, women and villagers in particular.

New Delhi Regional Office

New Delhi Office brought out a comic book on basic banking, titled 'Raju and the MoneyTree'. A Core Committee on Financial Education, comprising of officers from RBI, New Delhi conceivedand scripted the story of the comic book as also handled the artwork. The comic book was broughtout in English and Hindi. Copies of the comic book were handed over to the officials of Government of Himachal Pradesh at Simla on July 1, 2007 coinciding with the inauguration of the sub office. Thecomic book was also brought out in Braille for the benefit of visually impaired persons. The services of National Association for the Blind, New Delhi were taken for adapting the story from the comic book.

Chennai Regional Office

Chennai Office has brought out two comic books titled 'Currency Matters' and 'Bank Matters'

in English and Hindi as part of the Bank's financial education efforts. The stories for the comic bookswere prepared in-house by a team of officers, drawn from various departments of the local office andthe artwork was out sourced. Copies of the comic books were handed over to the officials of Government of Himachal Pradesh during the inauguration of the Simla sub-office on July 1, 2007. Thebooks are being translated into Tamil.

Bangalore Regional Office

Bangalore Office has released, under its FIN-LIT project, a series of four comic books, inEnglish and Kannada, dealing with (i) introduction to basic banking, (ii) deposits, (iii) SHGs loansespecially agricultural loans and other livelihood loans like Govt. Sponsored schemes, etc. and (iv)other lifestyle enhancing loans like housing loans, vehicle loans, etc. and other products like ATMcards debit, credit cards. A short film, based on the frames of the books, with voice over in Kannadahas also been released. As an initiative in reaching out to a larger audience, the Office had put up a


33/41

33 | P a g e

stall in the Mysore Dasara Exhibition where this film was screened along with other information of relevance to the common man. The whole project of writing the stories and doing the illustrations wasundertaken in house.

Initiatives taken by Reserve Bank India, Bhubaneswar towards promotingfinancial education and literacy

Financial Education- Credit Counselling:- Persuaded UCO Bank to open a credit counselling centre atBalasore. The Centre plans to take up a Literacy drive in association with the local chapter of theChartered Accountants on Fundamentals of Book Keeping to SHG groups.

Financial Literacy:- The publication Bank Matters brought out by Chennai Office has been translatedinto Oriya language and Santhali language. The books were released by Honble Union Minister of State (Shri Pavan Kumar Bansal) on November 14, 2007 at the 111 th SLBC meeting at Bhubaneswar.

Publicity through TV / Radio:- As a supplement to the field level efforts, RBI, BBSR have also embarkedon a promotional biz. The SLBC contracted 15 minutes space per week for six months in DD and AIR

respectively in which a programme SANCHAYA on issues relating to Financial Inclusion (generic andnot bank specific) were discussed. The programme highlights financial literacy and addresses queriesfrom viewers. The broadcast covers 11 districts of Orissa. The expenses on this ad biz are on costsharing basis by SLBC members.

Social Campaign- Putting into practice what RBI preach:- RBI have sold the idea to the Rotary Club(Bhubaneswar) to involve themselves in financial inclusion exercise in a slum in Bhubaneswar andother cities. The Rotary Club received the idea warmly and in association with Vijaya Bank introducedfinancial inclusion programme in the identified slum in which 1700 slum dwellers were brought underthe fold of banking. Most of them are migrant labourers from Andhra Pradesh and RDs address tothem in Telugu (lasting for about 15 minutes) spurred them to open the accounts.100% Financial Inclusion :- One of the objectives of Financial education is to help inclusive growth.Ganjam District (population 31.60 lakh) has been declared as 100% financially included. Till now inOrissa 27 districts are declared 100% financially included Out of 30 districts. The rest three districts areJharsuguda, Malkanagiri & Nabarangapur. Mission Approach:- The Anganwadi workers of State Government act as business facilitators and arebeing paid Rs 10/- per account opened by the branch concerned. The expenditure on photographs of the financially excluded persons approaching the bank for opening the accounts is borne by thebranch concerned. Our officers are frequently interacting with the business facilitators andcoordinators to educate them about the mission.Educating School children and rural population:- The State Level Essay Competition for school childrenon financial inclusion organised by RBI was received warmly.

Financially Literacy Programmes held by Orissa Regional Office

S. no Date Place Organisations Involved Covered people

1 7.2.2009 Maitapur G.P in Simulia Block of Balasore District Meeting with Farmers club viz.Palli Pragati Krushak Mancha,


34/41

34 | P a g e

2 23.05.09 Padmasekharpur, Bhubaneswar UCO BANKeducate the villagers of the

advantages of opening bankaccounts.

3 27.05.09Indian Bank, Microsate branch,

Cuttack RoadINDIAN BANK SHG Groups

4 15.06.09 SBI, Sakhigopal, Puri STATE BANK OF INDIASHG Group members and

NGOs

5 19.06.09 UCO Bank Bhograi(Chandaneswar-Gazipur ) UCO BANK SHG Groups and Farmer clubmembers

6 14.07.09St Xaviers High

School,BBSRStudents of IX & X standard

7 21.07.09BJB English Medium

School, BhubaneswarStudents of IX & X standard

8 27.07.09DAV School, Pokhariput,

BhubaneswarStudents of IX & X standard

9 01.08.09Kalinga Institute of Social

SciencesStudents of VIII, IX & X

standard

10 03.08.09Marsaghai High

School,KendraparaStudents of IX & X standard

11 06.08.09Bipin Bihari School,

Bhubaneswar for the deaf and dumb

Deaf and dump students of VIII, IX & X standard

12 07.08.09Bhima Bhoi School for the

Visually Challenged,Bhubaneswar

Visually challenged students of VIII, IX & X standard

13 14.08.09 Zilla School Puri Students of IX & X standard

14 18.09.09Palli Unnayana Seva SamitiNaharkanta, Bhubaneswar

Xaviers Institute of Management, Bhubaneswar

Students of IX & X standard

15 Nov 2 nd to 8 th 2009Baliyatra Exhibition,

CuttackGeneral Public

16Nov 21 st to 24 th

2009Confederation of Indian

Industry- exhibitionGeneral Public

Initiatives taken by Orissa State Govt. Towards Financial Literacy


35/41

35 | P a g e

Orissa state govt has supplied some financial education books to the public especially to the womenof the state who dont know about the basic financial aid or services. Some examples of the financialliteracy books are:-

ConclusionFinancial literacy is an understanding of personal finance and the ability to use that

understanding to benefit your economic condition. Those with financial literacy deficiencies often findit hard to manage money and save for long-term personal goals, such as buying a house or retiring.


36/41

36 | P a g e

Increasing your financial literacy is the first step toward improving your financial condition.Accordingly, literacy training has increased significantly in recent years.

Financial literacy can be promoted by bringing in wider section of public within theinstitutional literacy framework. Such institutional initiatives would largely focus on improving literacystandards. Also, all financial service providers have a moral responsibility to bring in a fair degree of transparency and fairness, more so those engaged in selling financial products and financialcounselling and the ethical grid within which they are supposed to work. This initiative is no lesschallenging than propagating financial literacy to the membersof the public.

There is a need for banks and other agencies striving to extend financial education to themasses to appreciate that financial inclusion is a continuous process. Efforts to extend literacy to makethe common man enabled by being aware of the evolving functional, legal and technical issues cannotbe a one-time effort.

A common effort of the educational programmes typically focuses on the 'supply' side thatstresses on attracting customers in the financial fold. However, what is needed is to have is an "autopilot" concept, where the prospective customer is empowered to make / demand the desired services.This could create a qualitative 'demand' situation of the financial services.

The objective of financial education is also customer protection. It helps customers to betterunderstand and manage financial risk and deal with complexities of the market place and takeadvantage of increased competition and choice in the financial sector. The RBI, on its part, intends toadvance the cause of financial education in the country as part of an overall strategy. Currently, aprocess of credit counselling is being encouraged to help all borrowers, particularly those in distress,to overcome current financial problems and gain access to the structured financial system.

However, in the ultimate analysis financial education is only one pillar of an adequatefinancial policy to improve financial literacy and expand access to financial services. It cancomplement, but not replace other pillars such as greater transparency, policies on consumerprotection and regulation of financial institutions.

This project has argued that financial literacy is important at many levels. It is an essentialelement in enabling people to manage their fi

a study on fiancial illietracy

Documents