The nature of Financial Literacy

Ever since i have become familiar with the word "financial literacy" and the manner of its usage and the contexts in which it is used i have had reason to wonder whether it is actually necessary to differentiate between financial literacy for the rich, poor (and to do justice to what is a large segment of the Indian population) the middle class. The origins of this question is founded in the fact that today we live in an economic context where macro economic realities and happenings impact the lives of people, Rich and Poor with the same intensity (albeit in manners more dependant to their different contexts).

A classic example of this is the economic phenomenon called as inflation (or in common parlance "price rise") and the kind of different impacts it has on all segments of society. While on one hand it is necessary to rein in inflation (and often this reigning in is done through stricter monetary policy like raising interest rates) as it can make the life of the common man hell by pushing up the prices of most essentials like vegetables and fuel etc, the same stricter monetary policy can also force loss of confidence in equity markets and by making credit expensive push down industrial growth rates. Whose concern should the government address in such a situation is a question of choice and i believe that the only way this dillema can be addressed is democratically.

This is where the question that i posed earlier becomes of paramount importance. If financial literacy is provided tailor made depending upon what we feel should people be made aware of it can leave some people better informed and others ignorant; thereby giving the better informed a better chance at shifting the decision making towards themselves and in disfavour of the ignorant (mostly the poor and the middle classes) who constitute the greater number and who should have been the recipients of redressal.At the same time it is also necessary to inform people that many at times macro economic happenings over which they are not responsbile can also have severe and sometimes shocking impacts on their economic and financial contexts. Many of you might say that it would be unfair to think that all people; whether rich or the poor or whether educated or uneducated; have the same level of understanding and hence can be dealt with in the same manner. I say i agree with you too. All people might not have the same level of understanding but the differentiation should not be in what constitutes the curriculum for financial literacy programmes but the methodology of carrying out the financial literacy initiatives; which should differ according to the socio-economic contexts of the audiences involved; so that all people have some idea about the financial and economic issues that to greater or lesser degrees affect them and their lives.

Savings and loans and explaining them to people are absolutely important in the case of a country like India where the greatest segment of people remain outside the purview of formal financial services, products and institutions.but at the same time it is also important to realize that as greater numbers of people are coming into the fold of formal financal institutions they are increasingly going to be exposed to newer dangers and threats - many of which remain outside their control and under the influence of macro economic factors. It is time the common man was made more aware of these threats and informed about information assymetries so that he can claim his protection and what is due to him in the new socio-economic and financial context.

Posted by Vivek John Varghese