Importance of Financial literacy among growing

youngsters

In an increasingly risky and globalized marketplace, people

must be able to make well-informed financial decisions. Yet
new international research demonstrates that financial illiteracy
is widespread even when financial markets are well developed
as in Germany, the Netherlands, Sweden, Japan, Italy, New
Zealand, and the United States.
Studies conducted in various countries across the world have
shown that a significant percentage of young adults were found
to be "financially precarious" because they had poor financial
literacy and lacked money management skills and income
stability.
The role played by governments and employers in managing
investments on behalf of individuals has shrunk significantly in
the recent past as a result of changes in the social support
structures across the world. This has increased individuals’
responsibility in managing their own finances and securing their
financial future. In an environment where the range and the
complexity of financial products continue to increase, it is
imperative that individuals develop nuanced understanding of
the world of finance to be able to make choices that are most
appropriate to their financial goals and needs.
Research from around the world reports inadequate financial
literacy which raises serious concerns about the ability of
individuals to secure their financial well-being. There is
evidence that individuals under-save, fail to invest wisely and
are often indebted . Such behaviour is also evident among
youth, across nations. For instance, Reed and Cochrane who
have been reporting on student indebtedness in the US for the
last several years, in their latest report observe that about two-
thirds of students who graduated from college were heavily
indebted due to education loans and credit card borrowings.

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In India too, there is an increasing trend of borrowing amongst
the young population. According to the Reserve Bank of India
(RBI) data on sectoral deployment of bank credit, personal
loans, which include home, vehicle and education loans,
accounted for a record 96 per cent of incremental non-food
credit in the last financial year. A large proportion of customers
taking personal loans, consumer durable loans are working
class in the age group of 25 - 45 years. In terms of geographic
split, metropolitan cities (population greater than 10 lakhs)
accounted for 80% of the credit card customer base.
Is there a cause of concern? Are the youngsters of our country
falling into a debt trap? In developed nations like the US, many
households are living way beyond their means. Many over
there take payday loans just to make ends meet and some take
credit cards to pay off existing card bills. So, will we see a day
like this in India?
Traditionally, Indians have been more conservative and that
even though there has been an increase in credit appetite by
Indians in the past few years, largely speaking, households still
haven't fallen into a debt trap. However, living beyond their
means has already becoming a reality for a small percentage of
borrowers, and the trend is on the rise.
In a survey by Financial Services giant Visa, Indians emerged as
one of the least financially literate among 28 countries. Some
of the reasons why Indians ranked low in this reports was the
lack of household budgets, lack of money management
discussions with family, financial education and overall
understanding of money management basics.
Financial Literacy is defined as the knowledge and ability of an
individual to make informed and effective money management
decisions.
India is the second most populous country at 1.2 billion after
China. It is home to 17.6% of the world’s population and it is
said that 76% among those 1.2 billion are financially illiterate.
Additionally, India’s average age is 25 years and by the year
2020, our country’s average age would be 29 years against
China at 37 and Japan at 48, which would mean that India will

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be a country full of young and enthusiastic people who will be
willing to take our country forward.
An erroneous thought is that financial planning and financial
knowledge is only important to adults. We as individuals need
to understand that a plant stays strong only when its roots are
firm. Analogously, the future generation has a need to has a
need to have knowledge on why money is important and the
necessary precautions they need to adapt to make their future
financially strong. Hence education as a system plays a vital
role to deteriorating financial illiteracy.
In Indian homes it is the general norm to keep the children out
of money matters so that they are not burdened by the tough
life that awaits them after college or so that they focus on their
academics, and this is where the parents go wrong. When these
children grow up they are faced with difficulties regarding the
decisions they need to take regarding their income and the
most that they can do is keep their money in fixed deposits and
savings account which doesn’t give them a lot of returns and
even if they do invest, they are greeted by losses because the
decisions weren’t informed, they were taken in haste.
The youth would be financially literate only when they are
taught from an age as young as 9 or 10. When they are given
their respective pocket money they must also be taught about
the advantages of saving their money for future use. By the
age of 15 or 16, they must have an idea about the stock
markets and different saving schemes which they can use when
they come of age. Educational institutes should conduct classes
on financial literacy even for students of humanities and
science streams to ensure that they know the basics of markets
and the basic investment procedure so that when they start
earning they don’t only become smart workers but also smart
investors.

Ultimately, when these financially literate people hit the age of

40 with a burden on their shoulders regarding retirement and
family, they will be able to handle it with grace because they
know that their hard-earned money is not sitting idle but is

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generating additional income for them. Smart investment
decisions make smart citizens and smart citizens in return
make an intelligent country which is financially stable in times
of crisis.
As the CEO and Executive Chairman of Berkshire Hathaway
Warren Buffett once said “Do not save what is left after
spending, but spend what is left after saving”.

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