MUMBAI, August 27, 2015 /PRNewswire/ --
- Study on Financial Literacy in Tier II - III Cities and Beyond
- Interacts With Respondents Across Diverse Backgrounds
A 17-year-old Indian teenager Ayuj Saraf, studying in BD Somani International School, Mumbai under the guidance of IIM Lucknow Professor A. Vinay Kumar, has researched an article on financial literacy. His research sums up the importance of educating semi-urban and rural population on the nuances of financial products and benefits accrued across the spectrum, which holds the key to inclusive growth in India.
In the last two decades, India has made rapid progress on macro and socio-economic fronts with financial literacy following suit. However, in terms of penetration and awareness, there is a long way to go for financial literacy, especially in Tier II cities and beyond. At a time when Indian financial markets are doing well; financial inclusion initiatives are being pursued vigorously.
The central and state governments are unleashing financial schemes for women and rural India, the relevance and importance of financial literacy needs no exaggeration. Financial literacy refers to the understanding and knowledge about financial products - savings, credit, insurance and investment - and concepts - real and nominal interest rates, primary and secondary markets, inflation, simple and compound interest, tax planning, etc. - which the study analyses and draws some interesting and encouraging conclusions.
General awareness:
There is a high level of awareness about (a) the consequences of inflation; (b) benefits and avenues for savings; and (c) performance of equity markets. Slightly complex issues like real and nominal interest rates are only understood by the educated. Most respondents have a bank account and Aadhaar card, but not many know the concept of 'no frill' account and the utility of Aadhaar card beyond producing it for address or identification proof.
The NDA government launched financial and welfare schemes such as 'Pradhan Mantri Jan Dhan Yojana' (opening of bank accounts to provide basic financial services to poor) and 'Sukanya Samriddhi Yojana' (empowering girl child by requiring parents to make periodic deposits carrying higher interest rate) with fanfare, but awareness levels about the scheme and its features is quite low, especially for the latter.
Awareness about Investment products and opportunities:
Over 45% of the respondents save more than 10% of their annual income but the propensity to save are very low among the youth and the middle-aged. Awareness of different forms of bank deposits and their features is very high across respondents and therefore, bank deposits are the preferred avenue for savings followed by equities and real estate. Gold remains a very popular saving instrument and it is widely perceived to be inflation hedge. Interestingly, some respondents keep their savings locked at home and have no inkling of the interest loss.
Awareness of market indices - Nifty and Sensex - and functioning of the equity markets is reasonably high, and some respondents invest a sizeable portion of their annual income in the equity markets. However, the same cannot be said of the debt markets - for instance, over 60% of the respondents do not know the relationship between bond yields and bond prices and the significance of bond ratings for corporate bonds. Investment in debt instruments is popular only with salaried employees, who for tax saving purpose, invest mostly in tax-free bonds, PPF and CPF. Insurance, surprisingly, is perceived as an investment option rather than as a pure risk indemnity instrument and the level of awareness is found to be high among only the high income groups.
Access to Credit:
The informal or shadow credit market and the lengthy procedures to access credit influence credit disbursal in India. In case of emergencies, respondents mostly dig into savings or borrow from friends and relatives. Bank credit comes third, followed very distantly by moneylenders. Borrowing is mostly for medical emergencies, followed by education and asset creation and this defies the long-held belief that Indians borrow money to splurge on weddings. The awareness and use of plastic cards is widespread among the youth and middle-aged respondents due to rising consumerism, emergence of e-commerce companies and hypermarkets.
In sum, there are good reasons to believe that financial literacy is making good progress in most of Tier II cities in terms of financial knowledge and reach. Only when many more people enter the equity and debt markets and also move away from the conventional sources of borrowing, we can conclude that financial literacy is a huge success.
Media Contact:
Edriech De Souza
edriech@conceptpr.com
+91-22-40558900
Concept Public Relations India Limited
Edriech De Souza
edriech@conceptpr.com
+91-22-40558900
Concept Public Relations India Limited
SOURCE Ayuj Saraf