Chapter: 5

Theoritical Perspective of Financial

Literacy
The previous chapter in which concept of Financial Inclusion, has
been discussed, contains selected important definitions of Financial
Inclusion and the fact that financial literacy is an essential element of
those financial services, which are basic to defining Financial Inclusion.
The definitions which have origin in Britain clearly state that financial
literacy is part & parcel of Financial Inclusion, but other definitions have
elements, which cannot be achieved without financial literacy.
Accordingly it will not be wrong to state that this word ‘Financial literacy’
is a concept which is duly recognized as part of the financial world. To
understand this concept there are some issues attached to it, which
need to be classified & discussed first. Literacy as commonly
understood is exposure to reading, writing and Arithmetical abilities in a
person of a certain level that should enable him/her to further pursue
the school / college / university education. Exposed to this literacy, the
person is designated as literate and ready to move into field of
“Education” & then into “Expertise”. However, such a literate person,
when goes to learn music and painting, he will have become literate in
language of music or painting. Actually person learning music or
painting may not even he “Literate” in the sense, we have been
discussing, but can become a big musician or painter. When we talk
about “financial literacy/education”; like music/ painting, Finance is a
language unto itself. One will have to learn it like one learns Music etc.
Formalor ‘Alphabet’ Literacy as above may be of help in accelerated
learning but may not be an absolute essential for becoming financially
literate/educated Actually it is possible that one need not be even formal
“literate”. Even illiterate can be efficiently financially literate, through oral
learning. After all even an illiterate worker recognizes money and lives

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his common life and sometimes even has relationship with Financial
Institution/bank. It is common experience in life that everybody uses
money for transacting economic activities suited to once level in life;
even blind man uses money / coins and they come to recognize by
experience even the denomination. Totally illiterate labourers get
money- bank note / coins and do their purchase correctly by giving
exact value and getting back the change.

They even save, even if it is in their box, some money to be used

in rainy day. They may raise loans for meeting their obligations. They
have to repay it too, quite often more than what they take. Whether
such a person knows or not, but he / she is paying Interest in the form
of “excess payment over original amount”. “A Significant portion of
demand for credit by rural households arises in order to ease the
financial burden of crop failure, illness or death, and health care. In the
case of micro-enterprises, credit may be needed to achieve a
reasonable and visible scale of activities. The rising entrepreneurship
spanning rural, semi urban and urban areas, particularly unrecognized
and informal sector may give rise to large potential demand for credit.
The evidence on demand for credit in India suggests those medical and
financial emergencies are the major reasons for household borrowing”.

The participants / borrower in above situation are obviously not

expected to be always formally “Literate” They will be illiterate and yet
they are using very important financial service i.e. credit. The basic
rudimentary inherent Knowledge/ instinct to protect their own interest,
while availing credit from whatever sources – formal (i.e. financial
institutions) or informal (i.e. moneylenders / friends / relative), in above
situations shall operate – making them to some extent “financially
literate”. May be a professors of economics, when he goes to a bank
first time, may turn into “Fool” while doing his banking transaction.

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 There are many instance where perfectly educated people are
seen taking directions from the gun wielding guard on the bank branch
gate- not as to where branch manager sits but as to whether particular
deposit slip is an appropriate one for their purpose. The guard who may
not even know A.B.C.D., but is experienced enough to tell the gentle
man & lady that fill this and that column / rows and complete the job. In
this situation obviously the professor is financially illiterate, while the
illiterate guard is financially literate. True, the guard will have limitation
due to inability to read & write, while the professor will multiply his
knowledge with the experience gained and surpass the actual level of
financial literacy, gained by guard on the basis of his experience in the
bank as well as an oral transferee of knowledge & information; this will
depend on professor to learn. Hence, it can be conclude that formal
literacy, may expand the possibility of becoming financial literate, much
faster and effectively, it(formal literacy) may not be essential to become
financially literate, which can be done through oral / experimental
means of processing of the information by the mind, (Irrespective of
formal “Literacy”), provided one is willing and there are opportunities
available or provided which are not “Formal literacy” dependent.

Definition of Financial Literacy:

One of the factors identified is “Limited literacy” with particular

reference to “Finance skills in Basic mathematics, business finance
skills as well as general lack of understanding of finance and related
environment have been identified as a constraint, on demand for
financial services. Going by this if a definition in attempted which has
not been exactly done in the literature above the ‘financial literacy’ will
mean “understanding basics of mathematics and business transaction
which are financial in nature.” Corollary of this will be that if financial
literacy exists, it will increase, Demand for financial services and
increase in all the attendant benefits of these.

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 “OECD defines financial literacy as a combination of financial
awareness, knowledge skills attitude, and behavior necessary to make
sound financial decisions and ultimately achieve Individual financial
wellbeing.People achieve financial literacy through a process of
financial education”. OECD defines financial education as “the process
by which financial consumers / investors improve their understanding of
financial products, concepts, and risks and, through information,
instruction and/or objective advise, develop the skills and 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 action to improve their financial well- being.” Thus O.E.C.D has
reversed the hierarchy of ‘words’. In common understanding Literacy
precedes Education, but in the field of finance, O.E.C.D. targets
Education first to achieve financial Literacy. However, a careful scrutiny
of elements of definition of FINANCIAL education apparently are, initial
steps of financial learning which will lead to a certain level of
awareness, & knowledge, leading to a certain level of skills, when in use
in financial dealings, develop attitudes which result in appropriate
behavior of taking a sound financial decision, with to view of financial
well- being of the individual; and this is FINANCIAL Literacy for
O.E.C.D..

Actually, in our under-standing such achievement or result is the

aim of education in the hierarchy of learning; and the process of
education as defined by O.E.C.D. i.e. understanding financial
products/concepts/risks/, through information; and/or instruction; and/or
advise and to know where to go for help, is the process of literacy in the
hierarchy of learning. We observe that in any learning process the
literacy and education follow each other-one gets literacy and then gets
educated up-to a set level i.e. some certified level. This certified level,
as a package, is Literacy, for some further Education.

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 Like a Zebra strip where white and black strips follow each other
and it is not really easy to know for a bye-stander whether white was
painted first or black (which only the painter knows); in the field of
learning ‘the Literacy- Education- Literacy—ad infinitum continues. We,
in India and O.E.C.D. internationally are all bye-standers. In Financial
area what I say Literacy, is education for O.E.C.D.. Thus, no wonder the
words Literacy and Education Fall in the category of ‘Confused Words’
and probably their use interchangeably need not be an academic sin. In
this thesis both the words are being used interchangeably. In the survey
done for this research spanning in 30 district in ODISHA, in which
approx.. 150 persons @5 persons from each district were interviewed
.The sample consisted of 2 bankers (designated as officers in their
banks),1 lawyer, 1 teacher teaching in commercial stream or
accountancy/ business management and 1 person selected randomly,
on the street outside a bank branch.

Even after clarifications asked by respondents being given, and

explanations made, 55 respondents did not know anything about any of
the above. Out of balance 95: 75 respondents settled at the answer that
“literacy” meant “awareness”, while 20 respondents understood it as
part of syllabus taught in management schools/university. 82
respondents differentiated between Literacy and education while 13
made no distinction. Education was considered higher than Literacy.
Only 5 respondents linked it to financial inclusion and hence awareness
about banking services and all these 5 were bank officers who had
exposure to an outreach program done by R.B.I. where Inclusion was
a topic of information. Thus almost 54% respondents settled for
meaning of literacy as ‘awareness’ about any subject in question. (This
is generally supported by review of number of lectures delivered by
R.B.I’s top officials and mentioned in deliberations in seminars/works
shops. Also, tangentially, the definition of financial inclusion, with which
financial literacy/education is linked, support this .Peculiarity of
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impression obtained, post this Survey, was, that very large segment of
the common man did not distinguish between literacy and education
and distinction if any was not mentioned/identified. On the basis of the
above small survey (which had broad geographical area covered in
ODISHA. i.e. 30 district of Odisha), it can be treated as one of the
“Findings” which can help in deducing a “definition”, which is an
objective of this study. Before reaching stage of framing a suitable
definition of ‘Financial Literacy and education’, it is appropriate to have
an assessment of thinking of Central Bank of the nation viz. R.B.I.,
which is spearheading the movement of financial inclusion in the
country, at conceptual level.

Dr. K. C. Chakrabarty, Deputy Governor of R.B.I., in his lecture

dated 8th June 2015, described many initiative and progress made in
spread of financial Inclusion. He also refers to financial literacy and said
that “Financial Literacy(F.L.) and Financial Inclusion(F.I.) should go
together” He also informed about formation of a separate monitoring
body for bot –F.L. & F.I. as above , viz. “Financial stability development
council (F.S.O.C.). F.S.O.C. has created a technical group on financial
inclusion and financial literacy , which carries mandate to co-ordinate
efforts of all financial sector Regulators. He also informed that ‘National
Strategy on Financial Education’(N.S.F.E) is also under process
(Education as defined by O.E.C.D.)

The peculiar thing in this approach enunciated by Dr. chakrabarty

,in 2015 as compared to approach adopted immediately after 2005-
2006, monetary policy statement introducing the term “financial
inclusion” in India, is widening the field of Financial Inclusion from
banking alone, to Insurance and Equity / capital Investment sector also
(in 2015). The original approach in 2006 onwards was to focus on
banking services through financial services, as was the trend all over
the globe with reference to definition of financial Inclusion / Exclusion.

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That means basic banking services like Savings / loans / Payments and
Remittance services as well as some basic Insurance products.
Financial literacy was treated as one of such services ‘only’, by original
thinkers, but an essential part of financial Inclusion. Now in 2015, the
Financial Literacy appears to have been recognized as an independent
field of activity compared to financial inclusion and hence it is
sermonized that both should go together. Thus financial literacy is now
an independent area in the mind of R.B.I. , but an essential element for
Financial Inclusion. This conceptual development is result of R.B.I.’s
association with O.E.C.D. since 2017. Yet another point is that as
aforesaid, the ambit of Financial Inclusion and exists by corollary of
Financial Literacy both, is widening to include “entire” financial spectrum
as stated above from the restrictive area of banking alone, to Insurance
& Capital market investments etc., and that is why the need for
coordinating all regulators like I.R.D.A. / S.E.B.I. / P.F.R.D.A. etc. exists,
so that different lines of financial literacy specific to particular sector, are
taken care of.

Analyzing further, it appears that there is shift in understanding

of financial literacy in India and Probably world over due to overriding
role being played now by O.E.C.D.. As already mentioned above the
word literacy has changed to ‘education’ in the language used by
O.E.C.D. and literacy is now goal rather than process. The “Financial
education is the process in lexicon of O.E.C.D. . It becomes important
because in 2015 , Dy governor R.B.I. is telling that there is a ‘National
Strategy on Financial Education’ is being prepared. Impact on this
strategy is not of definitions given by “United Nations” “World Bank”
“Asian Development bank” and Dr. C. Rangarajan committee, where by
financial literacy about savings / loans / payments and remittance as
well as basic insurance product, would have been sufficient , but impact
is now of O.E.C.D. , which is the effect after the “R.B.I.-O.E.C.D.
workshop on delivering financial literacy” held in march 2017, whereby
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the F.I is to be achieved through F.L., which apparently is standing on
its own leg now, rather than being part of set of Financial Services(
F.S.).

Before discussing the important aspects of ‘national strategy ‘ and

some important observations regarding financial literacy at above work-
shop, we can have bird’s eye view of R.B.I. Instructions regarding
bringing financial literacy to masses in India: Reserve Bank of India
(R.B.I.) has asked all lead banks to set up Financial Literacy and
Counselling Centres (F.L.C.Cs.), in their jurisdiction and indicated
activities of the F.L.C.C. are -

Providing financial counselling face to face to interested person

(or through electronic / communication media i.e. e-mail, fax, mobile,
telephone, letter etc.) about

 Responsible borrowing

 Proactive / early saving

 Debt counselling-both preventive and curative (i.e. how not to get

over-indebted and how to come out of it , if someone is in debt.
Indebtedness refers to debt due to formal / informal sector )

 Various financial product issued by financial sector.

 Advantages of being connected with formal sector.

 Debt restructuring for borrowers in distress.

 Promoting financial literacy / awareness about banking /

insurance product, financial planning and debt related distress.

On its own, R.B.I. launched “Project Financial Literacy” in 2007

andoutreach Programs In the year 2009, which was R.B.I’s. platinum
jubilee year for completing 75 years of its existence; and purpose of
these outreach programs was to campaign for increasing financial
literacy directed towards F.I. and awareness about Reserve bank and

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its product i.e. currency and coins and its general functions, known as
‘demystifying R.B.I.’. These took the shape of camps organized in
association with one or other banks, especially lead bank of that area,
or on its own accord not only in urban areas but in deep interiors in rural
areas. Information about R.B.I. / its structure and functions, features of
notes issued and distinction from forged notes, used to be common
topics of the area discussed. Besides this, the opportunity was also
utilized for distributing coins and exchanging bad notes with good notes
etc. It was also an opportunity to spread information about banking
ombudsman for grievance redressal of common man, regarding their
complaints. Simultaneous, the bank associated with the camp gave
information about banking facilities including savings A/C etc. Also
some loans were distributed under running schemes of central/state
govt. Since the entire programs was also envisaged as being ICT
(Information and communication technology) based/ oriented even
mobile banking or other methods of door delivery of banking services
through hand held devises, was also displayed and smart cards were
also issued. Actually activation of such card was one of the parameters
adopted to asses impact of such financial inclusion out-reach programs.
Its importance was visible as such out- reach programs were attended/
monitored by Regional in-charges of R.B.I, who had to ensure
presence of some top official from R.B.I central office. Also the
participating banks had to invite their top bosses to attend the programs
along with district and state govt. officials (but experience showed that
state govt./ district officials showed very lukewarm response except
occasional exuberance. As a matter of practice inviting local politicians
was not encouraged but panchayats’ in charges (sarpanches) /block
development officials did participate.

The methods used for carrying Financial Inclusion messages as

modes of spreading financial literacy were following:

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(a) Pamphlets containing specific areas of information e.g. R.B.I,
informed about currency notes and its security features to
distinguish from forged notes. Other banks also followed this
method in some cases.

(b) The most talked about and hyped method was creating cartoon
features in two different series (Raju and Money Kumar both in
English and Hindi ,initially and then extended to 13 Regional
languages) by many offices of the R.B.I. including its training
Institutions. The Titles and topics covered in the concerned
magazine are given in [annex-4]. There was criticism of many kinds
which this effort had to face like who will read?; why waste so much
money? What is the target Audience? Will it be effective? etc. etc.
The most serious of all appeared to challenge its rationale itself.
Basically, it appeared to target the student population. Hence a
small survey was designed to assess popularity of these cartoon
features, for the purposes of this thesis: the description is as
follows:

Notably 63% students (378), did not know about it. When these
were shown to them only 10% (38) of these came forward to take these.
Out of these only 18 students gave positive feed back (received after 15
days), that they learnt some thing. Apparently they partially read these
under instructions from the class teacher and these students were rank
holders in their class.14 students of these 18, were girls. Of balance
222 (37%), who acknowledged having heard and seen these, 150 had
received free during camps and programs held by R.B.I.; while 52 had
only heard about these from parents ( serving in some bank) and 22
had seen one or the other such cartoon feature with one of the friends.
All 22 had browsed through and actually read first 2 pages and last 1
page. Their search was for some interesting story line or attractive
characters. None of them asked for a copy, though that offer was

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specifically made to them. They learnt nothing from the partial reading.
Of 150(25% of sample), who actually got the copies, 30 were from
Lucknow and Kanpur where offices of R.B.I. are located. 40 students
had fully read it-all belonging to urban areas and under some
compulsion/ motivation and not due to inherent interest created per se
in the publication. Most of the motivation came due to some related
event viz. Quiz/ Essay/Debate in which bank/ banking/ RBI was
involved. They positively agreed that some learning was there, but its
retention was only 2 on a scale of 1-10. 35 students belonging to Rural
areas had read it partially only, (mostly not exceeding half the pages
and not in continuation). Their parents did not approve of reading a non
study material in most of the cases. They did not learn anything. 25 had
collected these and forgot about it. The number of non –responsive
students was 50.

Apparently, they have not become popular due to uninteresting

story line and probably unattractive characters.. one of the reasons,
also appear to be their not being available on bookshops and outlets
etc. on station/ bus stand. R.B.I. used to have stalls in melas and
exhibitions but general complaint was that enough nos. were not
available for being taken away by general public. Common feeling was
that these could be more popular if priced but lowly priced and written
by good writers and not like an advertisement. Free distribution takes
away its value, according to many students- (a surprise finding). It can
be concluded thus that while rationale of using this method is not wrong
but effectiveness in creating learning or motivating to the extent that one
goes to bank asking for some banking service, may not be as
expected/desired and improvements in writing/presentation are needed.

This Practice of holding outreach programs continued even after

2009. Other banks also started innovative methods of delivery of F.L.,
through use of information e- kiosks and mobile vans. In ODISHA.

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Canara Bank was first to launch its mobile van for spreading F.I./F.L.
especially in rural areas. H.C.B.L. Bank-an urban co.-operative bank
started its mobile A.T.M. (Automated Teller Machine), latter on it was
used for purposes doing Financial Inclusion too, along with Financial
Literacy work , within its Jurisdiction. According to R.B.I., Kiosks and
mobile vans etc. have immense potential of spreading information:

“ …The need is to increase the use of information Kiosks to

disseminate information not only about banking products ,but also about
input/output Prices, insurance products and health services. Banks
should come forward to set up such kiosks jointly and share the running
costs amongst them. It may be mentioned that similar model (e-
chaupal) has already been implemented by the private sector for
providing ready information in local language, on weather, market
prices, scientific farm practices and risk management. This model
presently covers more than 31000 villages and could and could be
utilized for promoting Financial Literacy in association with private
agencies”

During the survey, one of the suggestions received in this regard

was that if the use of kiosks is to be increased the R.B.I./ Government/
NABARD can make loans to banks for meeting the initial investment in
such project, at nominal rates.

The other means of delivering messages of Financial Literacy

used by R.B.I.in its outreach programs were:[ besides(a) pamphlets
,(b)cartoon features

 Banners.
 News Paper Advertisements/press releases
 Films
 Lectures
 Quiz
 Essay Writing Competition
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  Skits/street shows/ Nukkad Drama/Puppet Shows/ Stage Shows
 Exhibition on ground/ Rails
 Media /T.V. coverage of events/ Messages through
Advertsements on electronic media.
 Seminars/workshops/Conferences
 Dedicated website on Internet
 Combination of more than one of above

Other banks used following innovative methods also, (besides e-

kiosks, mobile vans, mobile A.T.M. and methods F.L. used by R.B.I.). -
Small sized leaflets, with glossy appearance having information about
their products/services have been kept in bank premises. Private banks
are quite fond of this.

 Similar leaflets are sent to the customers along with letters /

statements required to be sent to them.
 The covers of their letters etc. have information about their
products/ services which could be read by any body. Often faces
of celebrities (usually female ones) are shown by its side as if
they use these products /services.
 Banks have been putting up traditionally Notice Boards in their
premises containing information about the products/services/
other information of use.

Now big advertisements/ billboards are being used in bank’s

premises /stations/Bus stands/transportation points/ streets/ tree
guards/ electric, telephone etc. poles / coaches of trains/ inside buses/
tourist spots and ferries/ exibitions etc.

 Mobile messaging/ Internet advertisements being used as F.L.

 F.L.C.C. centres and RUDSETIs as training centres for

spreading F.L.

 Radio/ Cable T.V./ Picture palaces

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 Here the discussion would be incomplete if two more institutions
with heavy potential of Financial Inclusion as well as becoming powerful
messengers of Financial Literacy/Education,, are not brought into
picture:

 The Postal Department of Government of India; and

 Group of entities i.e. Micro Finance Institutions (MFI)/NBFCs/

N.G.O.s/ Self Help Groups(S.H.G.)

About Postal Department Paragraph from ‘Report on Currency

and Finance’ can be reproduced, to get an glimpse of their potential.
“Apart from the banking system, the Post Offices in India provide the
services of maintaining Deposits and Remittance.The Indian Post
Service with155516 post offices, at end March, 2005, is most widely
spread post office system in the world. The number of post offices were
more than twice the number of bank branches in the country, with a
large presence in remote areas. A post office in India, on an average,
served 7046 persons, at end March 2005. {it was less than half the
figure of persons served by each bank branch at end March 2005}
Indian Post Office offers various type of Small Savings Schemes and
also provide other banking and financial services. Small Savings
Scheme include deposits of various maturities and Public provident
Funds {as well as National Savings Certificate and Kisan vikas pattra of
fixed maturity.} Other Financial Services include, Money Order,
International remittances, Mutual Fund, and Postal Life Insurance. The
number of Savings bank accounts with Post Offices, which provide
cheque facility, was 60.3 million i.e. 19% of the Savings bank accounts
with banks( about 320 million).The amount of savings deposit per
account in post offices was around Rs.2500/- at end March,2005 as
compared with around Rs.15000/- with banks. This was because post
offices largely cater to the banking needs of the low income groups”

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 Noticeably, the Post offices are well known amongst general
public-especially the rural segment and considered more approachable
by common man compared to banks; i.e. more accessible and hence
more competent to include people financially anytime compared to
banks. All this without any formal campaign to either make the
introduction of the Institution (i.e. post office) to the general public or to
canvas for opening the a/c(s).

In the present campaign to achieve F.I., R.B.I. had to di-mystify

itself and tell about its product i.e. currency & coins, while banks had to
canvas for a/c(s). ; and when this process started, the importance of
Financial Literacy/Education came to fore (in 2005-06) ; and almost all
the available modes of traditional and modern communication have
been put to use to make the campaign successful. As against this, Post
offices had already covered the substantial path of financial Inclusion,
bereft of all the resources at the command of the banking system, at
end March2005 itself when the word Financial Inclusion was being put
in cradle of monetary Policy announced for 2005-06. Efficiency and
Effectiveness of results, which F.I. is seeking; favour Postal
Systemmore, than the banking system. In the survey, it was gathered
from the general impression of the rural population that the “Postman”,
who visited them on doorsteps, was considered as one of their own and
what he said, was the only financial information which prevailed in
decision making by the illiterate but perceptive rural people and the post
master was the ultimate friend , philosopher,& guide in the matter
whenever the postman arranged meeting between the two parties .The
Postmaster, though respected “Babuji”, was still a friend more than the
high official of the Post office.

Documentation and identification requirements are no less in

Postal system, compared to banks. People in Urban areas get irked by
the formalities and alleged red tape of post offices, besides its alleged

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shabbiness and pedestrian looks and upkeep; but not the Rural and
poor population nor the documentation/ identification deters them
because the postman is there as friendly neighbor hood, to take care of
all this procedural hurdles. Banks with clean and stylish furniture, often
high class surroundings, much more educated and highly paid
staff/officers ( compared to postal staff), has not been able to acquire
the same acceptability as post offices , with the common man-especially
in rural areas; hence the challenge of F.I/F.L..

Analysis of the situation, indicates towards the fact that the only
differences and material one at that( compared to banks), the post man
interacted with the people at personal level,and in capacity of a trust
worthy person- a Government employee, who had no selfish motive,as
he delivered letters and brought money to the people as a service to
them; and in that circumstance he was face to face while contacting
people. He also did handholding in the post office in transacting their
business, be it a/c opening or operating it or any other matter. It gave
him immence confidence and credibility with people and made him a
very influential vehicle of needed financial Literacy, which people
“Trusted”,although there is a distinct possibility that the postman may
not really be knowing much himself about all postal banking products.
But he made sure that whatever he informed was either correct or if
wrong anywhere it could be corrected in presence of postal authorities
and the potential client, in a manner and in time that no loss was
caused to the customer. That led to Financial Inclusin in post offices,
better than banks.

The level of financial literacy/education was limited to the level of

postman’s level of knowledge/skill of communication and the only mode
of delivery was personal contact. The Post Office officials gave all
permissible support to the postman to enable him to retain confidence
of people with whom he worked. History shows that at least till 2005,(

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when the word Financial Inclusion was born in R.B.I. monetary Policy)
the post office system was doubly successful than formal banking
system without knowing the word Financial Inclusion or financial
Literacy.

Notably, it is observed that both – Post Offices & banks have

same mandate i.e. interact with people at grass root level; for which
both have to establish offices at different places in the country- Far-
Wide-Deep in all kinds of Geography of our nation i.e. “Brick & mortar”
offices /branches. Resources and quality of Human resource available
with banks have been better than Post Offices at any time, yet banks
have been able to reach only half the places, compared to where the
post Offices have reached, and with much less acceptability compared
to Post Offices (Banks are feared only a notch less than Police Stations
, as per one of the surveys conducted by a N.G.O. while Post Offices
are like next door neighbor’s shop). One of the differences which is
prominent,is, that clients have to go to the bank to know the banker and
transact business. In case banker has to visit the clients- it is for
recovery and quite often Revenue official/Police will accompany; In
case of Post Office the post man comes on door step and does
handholding when the client has to go to the Post Office. That personal
touch of the Postman was missing in the banks. In the survey of opinion
about the ”Mobile Unit of Postal Department”i.e.the postman” the
following graphic description emerged in Rural and Urban mind set:

The postman represents the “Sarkar” (Government), yet an

interactive human being, who does Service of delivering Information
(letters)/ money /Parcells and acted as writer of letters for many illiterate
residents in Rural India and posted these after procuring stamps etc. in
the Post Office. May be the better off people rewarded him occasionally
on festivities, but his Services were not affected due to this, for those
who did not. Such rewards are not treated as bribes, but are not viewed

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favourably in urban milieu while it is absolutely fine for Rural populace.
Even the Postal Authorities do not frown on it saying” Don’t Give It”, if
you don’t want it. Make a complaint if there is deficiency in Service
(which is often not, except the apprehension on part of social idealists
for whom any give and take is corruption, which can likely affect the
services due to some motivation. These idealists are mostly in Urban
settings and very few in rural Settings). The post man had a
geographical area ‘as his service area’ and knew almost every address
in his territory. Any resident of his service area could contact him, for
getting help in transacting any business in the post office, with
confidence; and even postal authorities took the postman into
confidence if some resident approached them directly. The people felt
that relationship between postman and them was of pure trust . He will
give appropriate advice after under -standing the needs. If he did not
know himself, he will not hesitate in taking the visitor to the ‘Babuji”- the
Post Master/clerk and heads would be put together to find a solution
within strict rules of the post Office; the Government Audit being
deterrent for all concerned. For common man the officials of the post
office could not be reached very easily yet they were said to be friendly.
Procedures were tough yet surmountable. The credit for this goes to the
Postman. The Postman dressed in a prescribed Dress with his typical
cap, did not give impression of richness nor of high education and
mingled with poverty/ low income scenario of rural environs and he had
his own place in the local milieu. The post man is an invitee in the
socio-religious functions held in his territory- done by Haves and Have-
Nots alike and irrespective of religion. One of the other important
differences, between the banks and post office, is that the staff
shortages in banks is distinctly visible, which is not so in case of Post
Offices or at-least it was of manageable nature to the extent that every
personnel of post office would not be cribbing about it and this would
not become excuse for any and every kind of deficiency in service or

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operation; which is the situation in the banks for last two decades now
and a common employee seems disgruntled and dissatisfied in his
employment. Probably, Post offices had not evolved the principle of
treating Homan resource as “Expenditure”, which when saved increases
the profit. But for the banks which are also business Institutions, profit
matters and by corollary reduction in staff may be an appropriate
strategy. The curious question arises whether with such a pressure on
staff, will the banks be able to achieve ‘Mission Financial Inclusion/And
Financial Literacy/education, which is labour intensive effort. Even Dy.
Gov. of R.B.I. has considered this aspect as an Issue & challenge for
F.I. movement stating that there is ‘ Lack of ownership by banks in
implementation under Financial Inclusion’. These differences between
these two institutions, were probably lost sight of by the Regulator/
Government and banks themselves as the banks expanded into the
Rural India but missed on including People. The Post Offices did not.

Of-course, the situation in Urban India was some what different-

Some sections of people in Urban/Metro areas, termed post Offices
lazy, Bureaucratic procedures ridden, and overstaffed with lowly
educated and non-dynamic slow paced personnel. They demanded
change . These are the people who talk of fast moving economy, heavy
monetary transactions and a high class living standard etc.. For them
Post Offices existed only for delivery of letters,/ cheap but recorded
mode of transporting Parcels, and meeting the legal requirements
where even now Law recognizes only Post Offices as worthy of
Evidence in case of matters related to Communication of information
etc. For common urban milieu, the Small Savings Instruments/
certificates e.g. N.S.Cs/ K.V.Cs/P.P.F/P.L.I. etc. formed the centres of
attraction, of course not through Post man that much, due to paucity of
time on both sides, but due to publicity and business needs. That is
here the instruments of Financial Literacy and education like Posters/
Newspaper ads. Etc. were found effective to some extent. The
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informed people when needed in their own interest, approached
authorities of postal Department directly( bye passing the Post Man)
and did the financial transaction in S.S.I. instruments. Tendency of
opening S/B A/cs was not that much. Use of Notice Board Information
was found very useful and role of postman was done quite often by
Brokers sitting in the post offices . So the personal touch was not dead
altogether. But most powerful stimulus for choosing a postal product
and awareness about it was due to self interest and the enveloping
Financial Literacy followed Financial Inclusion. In the opinion of
Researcher, Financial Literacy/ Education can not have a base if it does
not cater to target’s one or the other need/ curiosity which should relate
to financial matter. This situation ,as described above , appears to be
extant, till 2005, when really the banks were propelled by R.B.I. To
Learn The Word F.I./F.L./F.E.; and R.B.I. started the outreach programs
first selectively by using methods of distribution of coins, notes
exchange programs and demystifying its own image. It was nothing else
but creating an environment for telling the banking Industry to go to door
steps of the customers for better Financial Inclusion-an in thing for the
Post Office system already.Some Learning , it was in the opinion of
researcher that got inspired from the character of the Post Man of the
Past- his door to door service and personal approach. De-mystification
did bring in some level of informality ;while the coins and currency did
cater to personal interests of needy or not so needy, both in Rural as
well as urban areas; all this creating an environment for learning for the
general population about matters- Financial in nature. It was ground for
introducing Financial Literacy/Education.

The post 2005-06 thinking and General Politico-economic

environment did not leave post office system untouched/ unaffected. It
became conscious of its image and started efforts at creating better
office environment and more modernized functioning. Apparently the
government of the day, between 2006- 2017 gave better pay scales to
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its employees on one hand, but asked them to be viable for the
Government, (if not profitable like banks) and efficient functioning and
customer friendly attitude was desirable. Post offices too were
introduced to modern technology and computerization in an effort to
compete with other financial institutions. Internet/ Mobile messages/
better written communication through notice boards and bill boards
within and without Post Office premises was taking care of needs
related to Financial Literacy/education as far as Small Savings products
were concerned. In urban setting this impact was truly visible, while
even post offices in rural areas too have felt the wind of change. But the
change has two downside effects for the Post Office system as came
out in the survey- The Post man has lost its position further in urban
areas where he has further moved away from people due to Technology
introduction ; and in rural areas also he has lost his position in the eyes
of literate sections of rural population, probably due to banks’
experiment of reaching clients’ doorsteps through Banking
correspondent model using smart cards and mobile technology as well
as increasing presence of courier service providers even in rural areas
reducing the dependence on written communication through letters i.e.
the frequency of a postman interacting with people is reducing and
hence the influence too is subsiding. Another Effect is that even Rural
population is becoming nearer to the banks and it is at the cost of Post
Office system.

As far as banks are concerned, Statistics of F.I. figures are on

rise and awareness programs have surely taken up the level of
acceptance of banks in rural and urban areas both, with the change in
people’s perception about banks in positive direction, which can be said
to be positive impact of f.l./f.e, proving a point that corelation between
f.l./f.e. and f.i. is positive and in india f.i. created ground for success of
f.l./f.e., at the extant level banking-financial- economic-literacy
environment during 2005-06 to 2009-10 time period and it was same for
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Odisha. too. In 2009-2017 R.B.I. celebrated its platinum jubilee by
observing the year long “Project Financial Literacy”. By the end of it the
F.I. /F.L./F.E. were buzz words in the financial system and there were
atleast apparent efforts on part of banking industry to remain on the
right side of the Regulator and the politico- economic thought process,
despite the problems of ownership of the mission F.I. by them, most
likely due to problems liked with acute shortages staff and officers in all
categories in banking Industry. The other Institutions which have
successfully made poor people’s lives better economically and thus
contributing in the economic growth are Microfinance Institutions (MFIs)
and Self Help Groups (S.H.G.s) running independently or by N.G.O.s.
The most famous example being Grameen Bank of Bangla Desh
founded by Mohamad Younus who was awarded Noble Prize for his
work. These MFIs are : Societies,Trusts,Co-operatives, not for profit
companies and non-banking financial companies registered with R.B.I.,
The MFIs covered almost 8.3million borrowers in 2008, giving a big
push to F.I. on the lending side. The NBFC sector within this group
accounted for about 42.8% and was fasted growing segment in 2008.
These institutions also worked on principles of door service, continuous
training of groups and continuous monitoring with necessary
handholding. In ODISHA. one of the MFIs viz. margdarshak is doing
very well. Margdarshak Financial Services Limited (MFSL) is a
category-B, non-deposit taking NBFC-MFI. Established in 2007 under
the aegis of Margdarshak Development Services, the microfinance
activities of MFSL reach out to about 29848 families with a loan portfolio
outstanding of 252.08 million as of March 2013. The company has
raised capital in 2 rounds and has 2 institutional investors viz. SIDBI &
Dia Vikas Capital Pvt. Ltd. The company has also availed term loans
from various financial institutions including AndhraBank, Union Bank of
India, SIDBI, Maanaveeya Development and Finance Pvt. Ltd, Dia

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Vikas and Ananya Finance etc. Necessary financial Literacy is done
extensively as appropriate for borrowers.

The entire year 2009-10, which was the year of Platinum Jubilee
of R.B.I., was observed as an year of outreach programs where
financial literacy was tried to be imparted by the above mentioned
methods as already discussed above by all the stake holders-R.B.I./
Banks/ State and Central Governments etc. The methods were target
oriented and hence took care of mostly those who were already
financially included or were to become so. The future potential was as
yet not on Radar i.e. Children and student population. R.B.I. made
efforts to get the tenets of financial literacy to be included in syllabus of
the schools following education system of State Board/CBSC/ICSC. In
U. P. it was included in pre high school classes in some text books
prescribed by State Board. However, an extensive experiment was
experimented in Karnataka in May,2009 and is worth noting down as an
indicator of R.B.I.’s role:

In Karnataka also, R.B.I. and State Board entered into an

arrangement. The background to this momentous event was the
decision taken, during the meeting of the Governor with Chief Minister
of Karnataka, on May 14, 2009 to launch a pilot programme on
Financial Literacy in Karnataka in association with the State
Government. The programme envisaged introducing financial literacy in
the curriculum of schools and colleges in the State of Karnataka.
Subsequently, at a high Level meeting between Shri Sudhakar Rao, the
then Chief Secretary, Government of Karnataka and Smt. Usha Thorat,
Deputy Governor, RBI, it was decided that revision of syllabus and
content of textbooks for classes V, VII, VIII and IX would be carried out
for the academic year 2017- 11. Accordingly, the content for the
proposed curriculum change was developed by RBI and formally
handed over by the Reserve Bank Governor to the Chief Secretary,

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Government of Karnataka on September 22, 2009 during the Outreach
Programme organized in Doddabelavangala village in Bengaluru Rural
district. The textbooks incorporating the content provided by RBI have
since been printed and made available by the Government of
Karnataka. Another significant decision taken during the meeting of the
Governor with the Chief Minister of Karnataka on May 14, 2009 was
that steps would be taken to make Financial Literacy part of non-formal
education. As a follow up to this decision, State- wide Quiz competitions
covering the schools, and PU colleges in all the blocks and districts of
the State, were held in association with Government of Karnataka,
SLBC and the Lead Banks. The literature developed by RBI under ‘Raju
and Money Kumar’ series and other material prepared on features of
genuine currency notes, etc. were used for conduct of the Quiz
competitions in both English and Kannada. RBI, Bangalore, printed
around 8.80 lakh booklets for distribution to the targeted
schools/colleges through the Lead District Managers and Deputy
Directors of the Education Department. The block and district level Quiz
competitions culminated in the State Level Quiz Competitions.

On the fringes, to give push to the F.I. drive through use of

technology, accordingly Electronic Benefit Transfer (EBT) Scheme was
also launched the same day by Chief Secretary, Shri S.V. Ranganath.
This was a sequel to Governor’s meeting with senior officials of the
State Government, commercial banks and financial institutions
represented in Karnataka on May 14, 2009, where it was decided that
all issues relating to implementation shall be resolved to facilitate its
implementation in the State. Accordingly, steps were taken to
implement the scheme as a pilot in Bellary, Chitradurga and Gulbarga
districts under ‘One district-multiple banks’ model for routing payments
through ‘no frills’ accounts, or other bank accounts, under Mahatma
Gandhi Rural Employment Guarantee Programme and Social Security
Pensions schemes. Such account-holders will be issued biometric
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smart cards with individual IDs. Later on, the Government of Karnataka
identified three other districts viz. Chamarajanagar, Mandya and
Dharwad for implementation of the scheme under ‘One district- one
bank’ model. This entire initiative is being planned and executed in co-
ordination with the State Government, SLBC and the respective Lead
banks of the above six districts.(Reporting done in March,2017).

In March, 2017 (22nd&23rd March), R.B.I. & O.E.C.D.

(organisation for economic cooperation and development) jointly held a
workshop on financial literacy, in Bangalore (Bengaluru now). It was a
high powered workshop, addressed by Finance Minister, Governor of
R.B.I. Dy. Governors etc. and participants were from India and abroad.
The inferences and impressions valid for the research based on pith
and substance of the discussions /lectures/presentations given in this
workshop, is consolidated below: Established in 1961, OECD is
engaged to help its member countries to achieve sustainable economic
growth and employment and to raise the standard of living in member-
countries while maintaining financial stability – all this in order to
contribute to the development of the world economy. As one of its key
objective, OECD has been working in collaboration with a host of
governmental agencies and central banks across the globe to promote
and impart financial education for creating an embedded protective
guard against potential financial risk. OECD has also established the
International Network on Financial Education (INFE) in mid-2008, which
brings together senior government officials from both OECD member
countries and non-member economies to discuss issues, new
developments, experiences and programs related to financial education.
The reason, why OECD has so readily agreed, to conduct this joint
workshop with RBI by sharing and sparing their resources is that RBI
wants to adopt the international best practices honed by OECD and
improve upon them for multiplier effect to cover vast multitudes of
unbanked and financially illiterate population. After all, financial
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inclusion is a necessary precondition for sustainable and inclusive
growth. Simply speaking, financial literacy refers to knowledge required
for managing personal finance. It does not necessarily refer to formal
education in finance. Instead, it encompasses an understanding of how
to use credit responsibly, manage money and savings, minimise
financial risks and derive long-term benefits of savings.

It is now well known that financial illiteracy afflicts both developing

and developed countries although in different measures. Several
surveys in countries like UK, Australia, etc. have found out that many
people are taking on financial risks without realising or understanding it,
and in fact are very poor managers of money. It is genuinely believed
that the recent financial crisis is largely precipitated by rampant financial
illiteracy or the lack of transparency that financial literacy is supposed to
bring into the model code books of financial service providers. We have
a plethora of instances of mis- selling and customers undertaking
financial contracts without understanding the risk import of such
transactions leading to unforeseen volatility and unsustainable
business. Financial literacy is also a necessary pre-condition for
success in financial inclusion drive. Dimensions of this issue can be
gauged from the recent paper by the Financial Action initiative, a
consortium of researchers. 3 important findings of the paper can be
quoted:

 2.5 billion adults, just over half of world’s adult population of 4.7
billion, do not use formal financial services to save or borrow.

 2.2 billion of these unserved adults live in Africa, Asia, Latin

America and the Middle East.

 Of the remaining 2.2 billion adults who are financially served, a

little more than 800 million live on less than US$ 5 per day.

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 With such estimates of the dimensions of the financial exclusion
problem, and the understanding that achieving financial inclusion is not
possible without financial literacy, the promotion of financial literacy
acquires an even greater urgency. Financial literacy can be promoted
by bringing in wider section of public within the institutional literacy
framework. Such institutional initiatives would largely focus on
improving literacy standards. 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
financial counseling and the ethical grid within which they are supposed
to work. This initiative is no less challenging than propagating financial
literacy to the members of the public. Hence, there is no doubt that
financial literacy should be one of the key initiatives in coping with the
ever-expanding horizon of risk. In RBI, there has been started a unique
public interface programme whereby RBI is trying to bridge the gap in
understanding regulatory perspectives of some key policy initiatives.
However, Reserve bank or central banks or bank regulators acting
alone would not be successful in meeting this extraordinary
responsibility in propagating financial literacy and bringing transparency
in dealing with financial services and products. Wider and active
participation of all stakeholders like other financial regulators,
Government – State & Federal both - Financial Service Providers,
Academia and others in civil society is needed in this grand initiative.
Also we require massive global efforts and co- operation for achieving
tangible results in this area. The OECD has been an intellectual leader
in the field of financial literacy. It has been involved in supporting
research and evaluation in financial literacy and has been proactive in
spreading awareness about the importance of financial education. The
OECD is by far the most valuable repository of knowledge on grass root
experiments in financial literacy. Learning from these international best
practices can certainly help India to “leapfrog” over several stages of the

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process. Partnering with OECD is therefore a huge and valuable
learning opportunity for India.

There is virtually no country whose economy has developed and

matured without a corresponding deepening of the financial sector. And
such deepening is possible only when individuals and households are
financially literate and are able to make informed choices about how
they save, borrow and invest. Indeed, it is possible to argue that the
sub prime problem would not have 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 a better 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 financial
crisis interrupted the growth trajectory. One of the key drivers of this
growth has been the increased savings rate in the economy, which
reached a high of 36 percent of GDP in 2007/08, the year before the
crisis. The increase in savings itself has been a consequence of the
changing demographics and the welcome trend of rise in household
savings. However, nearly half our population still lacks access to
banking and other financial services. If we can redress that and provide
this ‘left behind’ population access to the entire gamut of banking
services, we could raise household and overall domestic savings even
further, and that will fulfill 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 and expand the coverage of financial services
to all sections of society and to all regions of the country in a
meaningful way, particularly to those at the bottom of the economic
pyramid. Lack of financial awareness and literacy is one of the main
reasons behind lack of access to financial products or failure to use
them even when they are available.

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 In case F.L./F.E. is likely to increase the growth in economy, as
one side of the coin there is another side of coin too. Absence of
F.L./F.E. can likely cause systemic disasters too.An NCAER and Max
New York Life study shows that in India, around 60 percent of laborers
surveyed indicated that they store cash at home, while borrowing from
moneylenders at high interest rates - a pattern which increases their
financial vulnerability. Presume for a moment that all these people, if
they suddenly and simultaneously take a financially disastrous decision
and come in a crisis, it will not be an individual’s misfortune alone, but a
systemic crash, which could be avoided if they are appropriately and
sufficiently aware about financial facts. Financial literacy and awareness
are thus integral to ensuring financial inclusion. This is not just about
imparting financial knowledge and information; it is also about changing
behaviour. The ultimate goal is to empower people to take actions that
are in their own self-interest. When consumers know of the financial
products available, are able to evaluate the merits and demerits of each
product, are able to negotiate what they want, they will feel empowered
in a very meaningful 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
which has been learnt in the outreach programmes is that financial
literacy is not just a public good; it is a merit good. What this means is
that by deepening financial literacy, not just individuals and households,
even the society at large stands to benefit. In this context, It must be
mentioned and credit should go to the OECD for taking a pro- active
initiative in generating awareness about financial education. Sometime
ago, it had done a major International study on financial education titled
'Improving Financial Literacy' encompassing practical guidelines on
good practices in financial education and awareness. These guidelines
promote the role of all the main stakeholders in financial education:
governments, financial institutions, employers, trade unions and

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consumer groups. In addition, they also draw a clear distinction
between public information provided by the government and regulatory
authorities, on the one hand, and that supplied by the financial analysts,
on the other. Observably, the level at which the delivery of Financial
Literacy/ Education had started in 2007 with the launching of Project
financial Literacy by R.B.I., Its direction has taken definite form and
focus is becoming financial system oriented, rather than being
individual/entity centered alone, by March 2017, when joint RBI-OECD
workshop has taken place. Clearly, the stage where F.L./F.E. followed
F.I. had been up scaled to the stage where F.L./F.E. & F.I. go side by
side supporting and complementing each other. The efforts to include it
as a course of study in the academic stream at appropriate levels, with
a proper syllabus, evidences are available.

At this juncture, it will be appropriate to see, as to what has been

content of the messages of day today finance, disseminating Financial
Literacy, during 2007-10. RBI in its out reach programs, took the
theme,meant for general public i.e. ‘Know your Bank Notes’. Short films
were shown on security features of high denomination notes,eg Rs,
100/- and Rs.500/-( old and new series). ‘Do not staple notes,’ was also
an Audio visual. A game was also devised to be played on computer
dealing with the same topic. For student population, the comic books
were brought out in 2 series Money Kumar & Raju series. These are 6
books with following titles

D. Subbarao, Former Governor, Reserve Bank of India; Mr. Onno

Ruhl, Country Director, the World Bank; Ambassador Richard Boucher,
Deputy Secretary General, OECD; delegates from the OECD, the World
Bank and from countries across the world; colleagues from Reserve
Bank of India, other regulatory bodies and agencies involved in
disseminating financial education in India; ladies and gentlemen. It is
my proud privilege to welcome you all to India’s capital city of New

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Delhi, a city of rich cultural and historical traditions, on the occasion of
this Regional Conference on Financial Education jointly organized by
RBI, OECD and the World Bank. As you might be aware, this
conference is a part of a series of events organized to disseminate
information about the activities of the Russia/OECD/World Bank Trust
Fund on Financial Literacy and Education. Two other conferences in
this series were held recently in Cartagena and Nairobi. We at the
Reserve Bank of India, are indeed very proud to co-host this landmark
conference, as it brings together all key stakeholders who are central to
India’s crusade for achieving universal financial literacy. We believe this
conference provides an ideal platform, not only for us, but also for
delegates from other jurisdictions in particular, the Asia Pacific Region,
to exchange views and learn from the experiences of peers. We are
also very happy and grateful, to have the World Bank and the OECD as
partners for this conference; two organizations which have made
immense contribution to spreading financial literacy and leveraging the
financial systems to improve the quality of lives of the marginalized
groups across the world.

Over the next three days, the participants can look forward to
stimulating and enriching deliberations involving global experts having
rich and varied practical experiences and learn from their experiences
of implementation of financial literacy initiatives in different parts of the
world. The conference sessions have been structured with focus on all
the important pieces which constitute the jigsaw of financial education.
For instance, keeping in view the importance of a well-articulated
national level framework for financial education, an interactive panel
discussion on experiences in developing National Strategy documents
for Financial Education, has been planned. Further, in view of the need
for assessing existing financial literacy levels in order to identify priority
areas while rolling out a National level strategy, the conference includes
a session dedicated to use of surveys for evaluating financial literacy
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levels and ground level feedback from such measurement exercises.
The conference also seeks to emphasize on certain focus groups such
as the youth and women with separate panel discussions dedicated to
these groups. All sessions have been structured to involve sharing of
experience by implementation experts from across jurisdictions and
would encourage free participation by all delegates, in order to optimize
the learning experience.

Need for Financial Education/Literacy:

Having given a brief outline of the Conference let me briefly touch

upon the theme of the Conference. Over the past few years, particularly
in the aftermath of the global financial crisis, the importance of Financial
Education and Financial Literacy has come to be widely acknowledged.
This recognition has led countries to initiate programmes to disseminate
financial literacy among its citizens. As the OECD’s definition of
financial literacy indicates, it is“a combination of financial awareness,
knowledge, skills, attitude and behaviours necessary to make sound
financial decisions and ultimately achieve individual financial wellbeing.”
I would argue that financial literacy is not only important for financial
well-being of the masses; it is also a sine qua non for the economic
well-being of the nationas a whole. Financial Illiteracy is not limited to
the poor or to the less developed economies alone, it pervades all
levels of society and economic strata. Only the manifestation of financial
illiteracy varies depending upon the stage of development of the
economy, and within the same country, upon the economic profile of the
individual. I am a firm believer that everyone associated with the
financial system needs to be financially literate. This includes the users
of financial services; the providers of services; and even the policy
makers and the regulators. For countries which successfully roll out
financial education programmes, the benefits are significant: At an
individual level, financial literacy/ education is important because it

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helps in building financial capability. It makes people better informed,
educated and more confident, able to take greater control of their
financial affairs and to fully harness the benefits of accessing the formal
financial system. People who understand their financial circumstances
are more likely to make sensible choices and ensure adequate
provision for their future. They are more likely to have an appropriate
level of insurance and reach retirement age with comfortable pension
plans. They won’t pay more interest than they need to when borrowing,
or settle for less than they should when saving. People with basic
financial awareness would understand risk return trade-off and take
better investment decisions, thereby being less vulnerable to frauds and
dubious schemes. Financial education can help reduce levels of debt,
poverty, repossessions, stress, illness and even crime. In sum, financial
education improves the quality of people’s lives and financial affairs and
provides them peace of mind, by instilling in them a sense of
confidence and security about matters of money. From a macro
perspective also, financial literacy/ education has important implications.
Financial Literacy, together with Financial Inclusion and Consumer
Protection form a triad which, collectively, has an important bearing on
Financial Stability. The three legs of the triad have strong inter-linkages,
with each element having a vital bearing on the others. The absence of
any one would make it difficult to attain the remaining goals. Financial
Literacy aids financial inclusion initiatives as it creates awareness about
the benefits of connecting with the formal financial system and hence,
creates demand for financial products. Financial literacy supports
consumer protection as it helps consumers better understand the
features and risks inherent in financial products, thereby reducing the
risk of mis-selling. It also generates awareness and willingness to
approach the grievance redressal system available, in case of disputes.
At a macroeconomic level, the cost of financial illiteracy is significant
and is manifested through scourges such as unemployment, poverty,

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high personal indebtedness and financial exploitation through mis-
selling. It results in avoidable leakages and wastages, which any
resource-scarce country can ill-afford. The savings habit, which can be
inculcated through financial education, can help channelize household
savings into productive activities, thereby supporting economic growth.
The increased demand for financial services, created as an outcome of
financial education efforts, can help bring depth and diversification to
the financial markets.

In India, financial education has been identified as a policy priority

and a massive effort involving the Government, various financial sector
regulators, financial institutions and civil society is underway. The
Financial Stability and Development Council (FSDC), which is chaired
by the Union Finance Minister, is mandated, inter alia to focus on
spread of financial inclusion and financial literacy. Under the aegis of
the FSDC, the draft National Strategy for Financial Education (NSFE)
for India has been prepared. Further, we are focusing on financial
education for school children and are involving various national
curriculum setting bodies in order to seamlessly integrate financial
literacy material into the existing course curriculum, without making it
burdensome for the children. Over the course of this conference, my
colleagues from the Reserve Bank and other agencies will be
presenting the nuances of India’s push towards universal financial
literacy. We look forward to your views and suggestions on where we
can do it differently, and better. As I mentioned before, Financial
Illiteracy is a global problem and the challenge before us is enormous.It
calls for a collaborative partnership involving all stakeholders and all
countries. While the experiences in individual jurisdictions would vary,
there are important learning points that we can pick up from each
country’s journey. I hope this conference succeeds in valuable sharing
of knowledge and experience among such a wide array of experts from
across the world. I do believe that with our collective efforts towards
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universal financial education, individuals and institutions would be
empowered to make informed financial choices and in the process, the
global financial marketplace would become a more stable arena, much
less vulnerable to financial crisis, such as the one we are facing today.
That is the ultimate goal of building Financial Capability in any society!

In March, 2013, another workshop viz. R.B.I.-OECD-World Bank

joint workshop on Financial Education was organised in new Delhi. In
this National Strategy for Financial Education was the main item on
Agenda. It is not Bank centric and appears to take other financial
sectors also on Board. Basically its plan is to have a tiered approach.
Tier 1- to spread awareness about basic Financial products and to link
them to the formal financial system/ sector; Tier 2- to educate the
existing users of financial products and services , to make the informed
choices and tier 3- to ensure Cosumer Protection for all users of
financial products and services. Based on above trilogy of needs, the
Key constituents of the national strategy would be a continuam of
Financial Literacy-financialeducation and consumer protection.
According to National Strategy document:

Key Components Of Financial Literacy:

 Why save?

 Why save regularly & consistently?

 Why save with banks?

 Why borrow from banks?

 Why not to borrow from moneylenders?

 What is Interest?

 How moneylenders charge very high rate of Interest?

 Why borrow within limits?

 Why borrow for income generating purposes?

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  Why repay loans?

 Why repay loans in time?

 Why Invest?

 Why Invest regularly?

 What is difference between Saving and Investment?

 Why will you need pension like regular stream of income

post working life?

 Why do you need Insurance?

 Why Insure adequately?

 What is cheque/draft/NEFT/RTGS ?

 Ey components

 How to calculate Interest?

Key components of Financial Education are as follows:

 Understanding the key financial products, one may need

throughout One’s life-including bank accounts, Insurance,
retirement saving plans etc.
 Understanding Basic financial concepts e.g. compounding
interest present and future value etc.
 Developing skills and confidence to be aware of financial
risks and opportunities and to benefit from them.
 Making good financial choices about savings/ management
of debt etc.

Key components of consumer protectioesn are as follows:

1. Creation of awareness about consumer protection fora at

District,State,& national Level; and providing quick and easy
access to users of Key components of Financial products and
services to these bodies.

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2. Providing quick and easy access to Ombudsmen

Thus, we see that consumer protection i.e. freedom from

exploitation or avoidance of malpractices is an essential function of
Financial Literacy/Education. This is position in March, 2013.

Position in India:

Financial Literacy & Financial inclusion to go together- Financial

Stability Development Council -Mandated to focus on Financial
Inclusion and Financial Literacy. A technical group on Financial
Inclusion and Financial Literacy under aegis of FSDC– Coordinating
the efforts of all Financial Sector Regulators. Financial Literacy Centres
set up in most of districts (650+) Rural bank Branches (35000+) -To
conduct awareness camps.Comprehensive Operational Guidelines for
conduct of camps.- Standardised Financial Literacy Material . Mass
scale awareness- Outreach Visits, Camps, Quiz, Essay Competition,
Role Play, Comic Books, Fairs and Exhibitions etc.

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