Financial literacy has been recognized globally towards preparing individuals to manage their

finances efficiently globally. The financial capability is a broader concept which not only
encompasses financial literacy but also takes care of institutional barriers which are often faced
by the vulnerable household. Financial capability consider both aspects i.e. ability to act and
opportunities to act for financial well-being. Amartya Sen (Sen 1987, P-36) work on theory of
the capability also endorses this concept. According to him, ―” capabilities…… are notions of
freedom in the positive sense: what real opportunities you have regarding the life you may lead”.
M. Nussbaums (2000) consider capability as internal trait of a person and it develops basic
analytical capability of individual from external environment. Development and strengthening of
internal capabilities being internal to individual are controllable to some extent but his control on
external environment i.e. State policies, laws, regulations, conventions and traditions, nature
calamities etc. is almost nil. A combination of individual internal capabilities (strength) and
favorable external conditions lead to well-being of a person. Financial capability has two
elements i.e. financial literacy and financial inclusion. Scholars in U.K and Canada coined the
term financial capability to explain the financial knowledge of people, their confidence and
motivation to manage personal finance (Atkinson et al. 2006, Dixon- 2006). HM Treasury
suggests that financial capability encompasses, ―People‘s knowledge and skills to understand
their own financial circumstances, along with the motivation to take action. Financially capable
consumers plan ahead, find and use information, know when to seek advice and can understand
and act on this advice, leading to greater participating in the financial services market. In
National Symposium of Financial Capability (2005), the authorities of Canada also
recommended that, ―An enabling environment for financial capability in Canada would ensure
that all Canadian develop the skill and confidence to be aware of financial opportunities, to know
where to go for help, to make informed choices and take effective action to improve their
financial well-being.
Financial Services Authorities (2005) also define the significance of financial capability.
According to them financial capable people are able to make informed financial decisions. They
are numerate and can manage budget and manage money effectively. They understand how to
manage credit and debt. They are able to assess needs for insurance and protection. They can
assess the different risks and return involved in different savings and investment options. They
have an understanding of the wider ethical, social, political and environmental dimensions of
finances. In United States the term Financial Capability is considered to be a set of financial
knowledge, skill and behaviour of an individual. Here this term, ―Financial Capability was used
officially first time in 2009 in ―National Financial Capability Challenges wherein it was
concluded that the American are in dire need of better financial education and access to critical
resources for taking smarter decisions (U.S department of Treasury 2009).