Pradhan Mantri Jan Dhan Yojana (PMJDY) has ensured universal access to a bank account a near reality.
But the level of usage of accounts remains quite low, which calls for ensuring financial literacy.
What are the concerns with financial inclusion?
India’s flagship financial inclusion programme PMJDY has ensured universal access to bank account.
India now has 180 billion accounts. But 48% of the bank accounts have seen no transactions in the last one year.
Insurance providers push products without adequately assessing the consistency in income streams of the buyers.
In view of the lack of proper awareness, people buy insurance policies without adequate planning and give up midway.
Consumers who cannot comprehend basic financial concepts often end up paying higher transaction fees.
They pile up unmanageable debts and end up paying higher interest on loans, which can mean more harm to the poor.
So financial literacy is crucial for making successful use of financial services and enabling people to make right financial choices.
What is financial literacy?
It refers to a set of skills that allow people to manage their money wisely, with understanding of essential financial concepts.
The OECD has a working definition of financial literacy -
it is a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well being
Building on OECD’s global paradigm, India’s National Strategy for Financial Education (NSFE) aims -
to spread awareness about basic financial products in order to link new users to the formal financial sector
to educate existing users of financial products and services to make informed choices
to ensure consumer protection for all the users
It is expected to impart the means to transform ordinary individuals into informed and questioning users of financial services.
What should be done?
Individuals should be imparted skills and knowledge as well as the ability to put these into practice through their attitudes and self-efficacy.
A basic financial education must comprise -
an understanding of financial planning
debt management investing
mechanics of interest rates and investment diversification
People must be trained in smart spending -
prioritising needs over wants
using credit card wisely
avoiding waste, funding expenses from savings and not loans
understanding terms of EMI (equated monthly instalments) before buying on EMI
Government must thus take into account that the right measure of financial inclusion is not access, but regular usage.
