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Global Financial Literacy: What to do about the Uneducated Public

Mukesh Dedhia, CFP, India

By Mukesh Dedhia, CFP

It is established that it is impossible to succeed in the modern world without the ability to read and write (literacy), so, based off that assumption, it would be impossible to succeed in the present-day financial system without knowing the abc’s of economics and finance (financial literacy). Individuals spend about 25 years of their life or more to gain knowledge in their respective profession.

People toil 24/7 to make more and more money, but lose sight of the fact that managing their hard earned money is just as important as earning it, if not more important. Wise people learn to manage their money at a young age so they can get out of the rat race, and have their money work for them.

Global Literacy

Research conducted for the OECD’s study on financial education indicates that the level of financial literacy is low in most countries, including developed countries. In Japan, for instance, 71% of adults surveyed knew nothing about investment in equities and bonds, while surveys in the US and Korea found that high school students failed a test designed to measure students’ abilities to choose and manage a credit card or save for retirement.

Overconfidence is the First Issue

Perhaps more shockingly, consumers often overestimate how much they know. In an Australian survey, 67% of those taking part claimed to understand the concept of compound interest but only 28% could find the correct answer to a problem using the concept. So, before they can even start work on providing financial education to their citizens, governments need to persuade them that it is seriously needed. Evidence shows that highly educated consumers with high incomes can be just as ignorant about financial issues as less educated, lower income consumers.

Stop Saving, Start Investing

In India, only about 57% of the population have savings accounts, and this percentage is even lower in the North-Eastern states. Clearly, financial inclusion and financial literacy levels are low. Wealth creation for the investor and the economy will remain a distant dream, unless the public becomes wiser about investing. We need to convert a country of savers into a nation of investors.

One issue people face when considering investments is the mis-selling of products. As a solution to that, there should be some government directive which makes acquiring basic financial knowledge compulsory before making investments. This will prevent investors from being fooled when they are purchasing financial products.

Having seen that financial literacy is very low and that it affects financial behavior, we naturally arrive at the question of what can be done to raise financial knowledge and which programs can influence savings and wealth accumulation.

Financial Education in High School

I have been a big advocate of financial literacy in high school; I feel it is important to teach sound financial concepts and principles at a young age. I wish I would have been taught basic financial concepts in school. If I would have, by graduation, I would have known to become a financial planner and would not have to wrack my brains, at this age. In fact, to manage personal finances successfully throughout life, today’s graduates need to be a lot more financially literate than past generations.

In India, big boards like Central Board of Secondary Education (CBSE) and Indian Certificate of Secondary Education (ICSE) should look at introducing relevant financial subjects at the school level. In December 2011, there was a news article mentioning that CBSE has agreed to include a financial literacy programme as part of the curriculum. The board has finalized the outline of the program in association with the finance ministry and the financial regulators. I hope to see some positive resulting from this program soon.

Another program that was introduced in school is called “Pocket Money.” It is a joint initiative being conducted by the Securities & Exchange Board of India (SEBI) and National Institute of Securities Markets (NISM). It was developed by NISM to impart basic financial skills to school students (Classes VIII and upwards).

Financial Education in Universities

Advanced knowledge about financial planning should be imparted to college students. Making it mandatory would be preferred, but in the least, it should be kept as an elective. Because learning money management skills is imperative for all people, this class should be offered to everyone and not just business and finance students.

FPSB India can spread financial literacy by partnering with universities to provide financial courses & give dual certification (CFP certification and a degree) to students. They could also structure a program where students received credits for undergoing training in financial planning.

Financial knowledge may be imparted through CFP professionals, Certified Personal Financial Advisors (CPFA, NISM & FPCIL certification) or other qualified professionals. There are many ways to go about educating the public but some structure should be instilled to spread the light of financial literacy. Even with little personal knowledge, individuals can avoid making simple mistakes by consulting with those who are more knowledgeable.

After all “LIFE” is all about” Learning Investments, Finance and Economics.”

1 comment to Global Financial Literacy: What to do about the Uneducated Public

  • Agree with you one hundred percent. Many people I come across have this notion that financial planning is only for the wealthy and oldies or for that matter every thing will turn out just fine. This mindset has to be changed.I believe that understanding the importance of finances and its future planning, is a lesson that parents should start teaching early in life.

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