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Financial Literacy Awareness
Chapters Synopsis Introduction Objectives Scope Research methodology Need for Financial literacy Importance of financial literacy Determinants of Financial literacy in an individual Scenario in India Study on financial literacy by experts Investment options Financial education Initiatives taen in India Financial inclusion !o" to develop financial literacy #rimary data Findings Recommendations Conclusion $ibliography S%NO#SIS
The finan financi cial al sy syst stem em play playss an impo import rtan antt role role in the the growt rowth h and and development of a nation. The financial system plays an important role in the growth and development of a nation. The basic function involve is to transfer fund from surplus generating unit to deficient generating unit. Since economic reforms, India has one of the highest saving rates in the world but allocation of these savings is a cause for concern. Crea Creati ting ng fina financ ncia iall lite litera racy cy play playss an impo import rtan antt role role in info inform rmat atio ion, n, know kn owle ledg dge, e, sk skil ills ls to eval evalua uate te op opti tion onss and and enab enable less cons consum umer erss to understand the implications of alternative financial decisions. Though financial literacy increased in India but negative symptoms which are observed are underinsurance, underinsurance, debt trap, insufficient retirement fund, low return on investment and the cause of all these is one and the same is financial Literacy. This research with the help of uestionnaire outlines the necessity and importance of financial literacy for the growth and inclusion.
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Financial Literacy Awareness
Introduction "inancial literacy refers to the set of skills and knowledge that allows an individual to make informed and effective decisions through their understanding of finances. Improving financial education and literacy standards underpins is a ma#or component in all our work and pro#ects. "inancial literacy means understanding financial products, concepts and risk risks, s, and throu through gh info informa rmatio tion, n, instr instruct uctio ions ns and$ and$or or ob ob#ec #ectiv tivee advise, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well being. Thus financial literacy is the ability to know, monitor and effectively usee fina us financ ncia iall reso resour urce cess to enha enhanc ncee the the well well bein being g and and econ econom omic ic security of oneself, one%s family and business, and also for improving improving the understanding of the financial service providers. In our case, our focus of financial literacy will be S&' members and their families and all other organi(ations who are involved with them. Thee conc Th concep eptt of "ina "inanc ncia iall Lite Litera racy cy,, is esse essent ntia iall lly y sp spre read adin ing g the the knowledge of good money management practices. It encompasses all monetary transactions that a person enters into such as earn earnin ing, g, sp spen endi ding ng,, savi saving ng,, bo borr rrow owin ing g and and inve invest stin ing. g. Th Thes esee transactions cannot be avoided and they are all integral parts of a person%s perso n%s life, li fe, and hence the introductio introd uction n of financial finan cial literacy liter acy will help people, peopl e, especially espec ially women to manage manag e these transacti tran sactions ons to their advantage. advantage. )ith financial literacy, poor poor will have opportunity opportunity to learn skills related to* a+ setting economic goals, b+ making ma king a financial finan cial plan, c+ managing cash flow, d+ keeping financial records, e+ minimi(ing debt, f+ planning for the future, g+ socially responsible actions without #eopardising the environment or natural resources
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Financial Literacy Awareness
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O$&'C(I)'S
To understand the meaning of "inancial Literacy
To identify factors that determine "inancial Literacy
To understand knowledge of "inancial Literacy among people
To understand ways to develop "inancial Literacy in an Individual
SCO#' The scope for studying financial literacy awareness is huge as the study may differ as per the demographics of the sample si(e. This pro#ect focuses on "inancial literacy awareness amo among undergraduate students in -ulund College of Commerce as they will be
Financial Literacy Awareness
the future earning population.
Research *ethodology / suffice research was undertaken to meet the ob#ectives of this study with the collection of both secondary and primary data. The primary data was collected through a uestionnaire designed for a sample of 100 students in -ulund College f Commerce. The secondary data has been collected from various references from books,maga(ines,#ourn books,maga(ines,#ournals als and the the internet.
+imitations Since the scope is vast, study was restricted to /wareness among undergraduate undergraduate students and thus observations will be limited.
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Financial Literacy Awareness
Need for Financial +iteracy The definition of financial literacy is 3having the knowledge, skills and and abil abilit itie iess to un unde dert rtak akee resp respon onsi sibl blee econ econom omic ic and and fina financ ncia iall decisions and actions with a reuisite level of competence.3 The recent global economic downturn has served to highlight our deficiencies in this area and has shifted focus to the need for financial education. Thee need Th need for for fina financ ncia iall lite litera racy cy and and its its impo import rtan ance ce for for fina financ ncia iall inclu inclusi sion on have have been been ackno acknowle wledg dged ed by all po poss ssib ible le stak stakeho ehold lders ers 4 policymak polic ymakers, ers, bankers, banke rs, practitione pract itioners, rs, researche rese archers rs and academic aca demicss 5 across the globe. 6arious financial literacy programmes have thus been implem implement ented ed by conce concerne rned d inst institu itutio tions ns,, with with a lot lot of them them being being uni un iue ue in their their appro approach ach and and deliv delivery ery mechan mechanism isms. s. "or "or inst instanc ance, e, programmes progra mmes have been customi(e custo mi(ed d to suit the reuireme reui rements nts of students, microfinance clients, slum dwellers, bank clients etc. Some programmes progra mmes have a particula parti cularr focus such as a specific speci fic financial finan cial product, produc t, developing devel oping saving savin g habit among target group, customer custo mer protectio prote ction, n, business busine ss managemen mana gement, t, and so on, while others other s are more general and deal with money management skills, advocating healthy finan financia ciall pract practice icess etc. etc. 6aried ried techn techni iues ues su such ch as video videos, s, storie stories, s, activities, comic books etc. are used, along with traditional methods of classroom training. 7anks like 8un#ab 9ational 7ank and State 7ank of Indi Indiaa have have also also begun begun setti setting ng up :fin :financ ancial ial liter literacy acy and and credi creditt couns counsell ellin ing g center centers% s% that peop people le can go to for for gath gatheri ering ng reui reuisi site te information. )hile a lot of e;perimentation e;perimentation has been done in the realm of financial literacy, it is difficult to point to one standardised method or approach that works best in all scenarios with all kinds of target populations. /lthough this could be attributed to the lack of a standard definition or measurement tool, it is also a result of India%s diversity in terms of langu language age,, caste, caste, cultu culture re etc. etc. &ence, &ence, it is chall challeng engin ing g to desi design gn a product produc t that tha t :fits :fi ts all% a ll% sections section s of the t he populat po pulation ion euall e ually y well. wel l. 'oing back to the drawing board, it is important to work with the premise premi se that financial finan cial services% serv ices% needs of an individual indivi dual vary primarily prima rily by age. )hile these also depend on financial financ ial status, stat us, social socia l status statu s and other factors, let us keep that constant and consider the life cycle of a poor household househ old
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"ollowing "ollowing studies, they may move out of the parents% house house and begin to live on their own
This simp Thi imple stor tory of the househo ehold involves lves an e;ch e;chan ang ge of dependency and responsibilities at each stage. Considering #ust the financial services% needs of the household over its life cycle, we see that they are very specific to the stage that the household or individual is in at a given point of time. "or instance, as a school going kid
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as much physical labour as they could earlier. /s time progresses and the individual gets married and starts a family, he$ she is reuired to think about safer financial financial products products and longer term investments. &is$ her dependency ratio is highest at this point 5 both children and parents pare nts are dependent depend ent on the individual. indivi dual. /s the individual indivi dual becomes beco mes older older,, simpl simplee banki banking ng serv service icess are reui reuired red to access access remit remittan tances ces transferred by children, and welfare transfers from thegovernment.
Considering all of these specific financial services% reuirements at various #unctures in life, four teachable moments can be identified* schoo school4 l4go goin ing g child child
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Table 1 maps maps the the four four teac teacha habl blee mom omen ents ts with with the the asso associ ciat ated ed attributes, along with the work that has been done so far in terms of implementation of financial literacy initiatives and assessment of the impact of the initiatives. /nalysing each of the stages independently would throw light on the way forward in designing financial literacy modules. / cross analysis of these, however, highlights the fact that there is little or no commonality among them and each is reuired to be taught taugh t with different differ ent instruments instr uments varying varyi ng in content, conte nt, delivery deli very mechanism and need for innovation. 9ote* 9ote * This table is based ba sed on findings fi ndings and learning lear ning from various vario us studie st udiess conducted by I"-A4LB/ on the sub#ect of financial literacy. To elaborate, the cognitive ability of a person starts developing when he$she starts going to school. /t this stage, an individual is immature with low or no understanding of emotions and concept of time. They take time to solve problems that reuire abstract thinking. They are usually attracted to things that are colourful, and are significantly influenced by games. :Learning by doing% is the mantra that drives childhood. Dids these days are also involved in social networking. /lthough no research has been done to study the impact of any kind of financial literacy training on school4going kids, instruments like comic books and concept conce pt of saving in a piggy bank seem promising, promi sing, given the attributes of their age. Similarly, a youngster #ust stepping into employment is characterised by good sensory senso ry abilitie abil itiess and memory memor y skills. skill s. Aeasoning Aeas oning and logical logic al thinking are fully developed. /t this stage, an individual is highly ambi ambiti tiou ouss and and feel feelss a need need for for inde indepe pend nden ence ce,, self self4r 4rel elia ianc ncee and and freedom from authority. /cceptance among peers is eually essential. Deeping these in mind, some teaching mechanisms mechanisms like money games, simulation games and soap operas have been designed and adopted globally, yielding positive results on financial behaviour of the youth
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religious events and activities could be leveraged upon. ccasions of interest to this age group should be used to bring them together and learning should be derived from discussions of their e;periences in life. In contrast to the work in the sphere of financial literacy that has been done with school4going kids, youth and elderly, various interventions have been developed and implemented for middle4aged people. This segment of the population is intellectually sharp but with a relatively slower reaction time as compared to youngsters. 8eople in this bracket take time to learn new things but their ability to do so does not change. They mostly understand things that they can relate to their lives, families, #obs, adversities etc. / lot of innovative methods have been adopted to teach them best financial practices, some aligning with their attributes and others ignoring them. -ost of the studies that have been conducted conduc ted so far fa r with wi th this t his partic p articular ular group illustrate illust rate an impact i mpact on financi financial al awarenes awarenesss and kno knowled wledge ge of the particip participants ants but limited limited effect on their financial behaviour, which in fact, is the key intended outcome of any financial literacy programme
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Importance of Financial +iteracy The recent global economic downturn has served to highlight our deficiencies in this area and has shifted focus to the need for financial education. Self /ssessment To Tools ols / simple uestionnaire that establishes your current financial status is a great place to start. This will provide you with a greater understanding of what it is you do know and what it is you need to learn about money management. )hen properly structured, self4assessment tools can assist you to develop your personal financial goals and to acuire a better sense of what you will need to make more informed financial choices. -oney -anagement 7asics -astering money management basics is crucial. Learning how to formulate and live within a monthly budget, building savings and creating wealth, planning for future financial needs, understanding how insurance products work are all key key areas that should should be be addresed. "inancial literacy is important important because it benefits consumers, the financial system and the economy. "inancial literacy causesconsumers to behave in a particular way, and develop particular attitudes concerning money. "inancial literacy enables people to makebetter financial decisions, to appreciate their rights and responsibilities as consumers of financial products, and to understand understand andmanage andmanage risk. risk. Thus, Thus, personal financial literacy ensures and prepares an individual to manage money, credit, and debt effectively. 7etterinformed consumers make more effective choices and more appropriate decisions. They are less likely to be mis4sold or mis4buyproducts and services. The benefits of financial literacy to the household will also bring benefits to the economy and the financial system which are asfollows* Benefits to Consumer
Increased saving and retirement planning -ore realistic assessments of financial knowledge by consumers Investing and choosing the right financial products with confidenceConsumer rights and regulatory intervention "inancial efficiency in the form activity in financial market and debt management Benefits to Financial System
'reater competition, innovation and uality products
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isciplined and broader financial market. Less social security burden. Benefits to Community
"inancial inclusion Enderstanding government financial policies
Determinants of financial literacy in an Individual /n individual is said to be financially literate if he$she is able to perform the following* Financial no"ledge and understanding * The individual should be aware of the products available in the market. Should possess adeuate knowledge about the basics of the products, products, the related concepts, consumer rights of such products and its use. Choosing appropriate products* Should be able compare similar products and choose the product product which suits suits their reuirement reuirement.. "inancial knowledge about the various products would enable this. Financial #lanning * The intensity to save and plan for their retirement life should be clear. Investing in proper avenues or saving through various investment plans shows their attitude and behaviour towards financial matters. The studies listed above shows that the financial attitude and behaviour is highly highly influenced influenced by financial financial knowledge knowledge possessed possessed by an individual. Day to day money management* "inancial literacy helps an individual to have control over his financial matters. It enables an individual to frame appropriate budgets which in turn helps them to track his finances and meet the ends.
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Financial Literacy Awareness
Scenario in India )hile we have become marginally better at saving and planning for the une;pected and retirement, basic money management still remains a weak point, shows a recent survey. In terms of overall financial literacy, India is at the bottom among 1= countries in the /sia4pacific region with 2@ inde; points, according to the annual -asterCard%s inde; for financial literacy. nly Fapan fared worse with 2> points. The inde; is based on a survey conducted between /pril !01 and -ay !01 with >,>2= respondents aged 1?4= years. The survey polled consumers on three aspectsGbasic money management <20H weight+, financial planning <0H weight+ and investment investment = inde; points and for investments it scored 2?, one inde; point lower compared with last year. The report states that for Indians, the lack of ability to keep up with bills, set money money aside for for big item purchases and and to pay off off credit credit cards fully could be due to a lack of surplus cash, resulting from the fact that income levels are not high enough to cover e;pensesJ. /ccording to esmond Choong, an e;ternal analyst who works with -asterCard on indices and surveys, this can be attributed to inflation. The Consumer 8rice Inde;4based inflation has been around @410H for the last two years. Interestingly, the younger lot seems to be slightly more financially proficient. The financial financial literacy scores scores for Indians Indians aged 0 and above above was 2@ compared with =1 for those under 0 years of age. This was an e;ception to all the other /sia48acific countries where the older cohort had clearly better financial literacy scores than the younger cohort e;cept for Indonesia where it was almost a tie between the two segments. &owever, given the small sample si(e and locations chosen for the survey, it may not be a true reflection of the things on ground. The sample is not too big and India is a large country with diverse lifestyle approaches. So I am not sure how far will this be true for pan4India,J says Aan#eet S. -udholkar, vice4chairman and chief e;ecutive officer, "inancial 8lanning Standards 7oard India. The survey was conducted with respondents at the urban level, so the results are particularly for urban Indians but may to a lesser e;tent reflect the situation as well for rural IndiaJ, says Choong. -udholkar, however, says that the survey can give a good idea from a country on country perspective. "or instance, &ong Dong and Singapore
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are comparable in terms of per capita income, population and purchasing power parity parity but India India operates on on a very differen differentt sca
S(,D% ON FIN-NCI-+ +I('R-C% IN INDI- $% '.#'R(S The following section gives the general studies made related to financial literacy* Studie Studiess by -arcol -arcolin in and /brah /braham am
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/nsong and 'yensare
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IN)'S(*'N( O#(IONS
)hile some plans accrue short term profits some are long term deposits. The first step towards investing in Indian market is to evaluate individual reuirements for cash, competence to undertake involved risks and the amount of returns that the investor is e;pecting. 7elow are Top 10 Investment ptions in India which assure safe and satisfactory returns /0 Investments in $an Fixed Deposits 1FD2
"i;ed eposit or " is accrues @.!2H of annual returns for non4senior citi(en, depending on the banks tenure and guidelines, which makes its widely sought after and safe investment alternative. The minimum tenure of " is 12 days and ma;imum tenure is 2 years and above. Senior citi(ens are entitled for e;clusive rate of interest on "i;ed eposits, current rate of return is average 10H annual. 30 Investments in Insurance policies
Insurance features among the best investment alternative as it offers services to indemnify your life, assets and money besides providing satisfactory and risk free profits. Indian Insurance -arket offers various investment options with reasonably priced premium. Some of the popular Insurance policies in India are &ome Insurance policies, Life Insurance policies, &ealth &ealth Insurance Insurance policies and and Car Insurance Insurance policies. policies. Some top Insurance firm in India under whom you can buy insurance scheme are LIC, S7I Life, ICICI 8rudential, 7a#a# /llian(, /llian(, 7irla Sunlife, &"C Standard Life, Aeliance Life, -a; 9ewMork Life, -etlife, Tata /I', Dotak -ahindra Life, I9' Life Insurance, etc. 4 Investments in National Saving Certificate 1NSC2
9ational Saving Saving Certificate Certificate <9SC+ is subsidi(ed subsidi(ed and supported supported by government government of India as is a secure investment techniue with a lock in tenure of = years. There is no utmost limit in this investment option while the highest amount is estimated as N 100. The investor is entitled for the calculated interest of ?H which is forfeited two times in a year. 9ational Saving Certificate falls under Section ?0C of IT /ct and the profit accrued by the investor stands valid for ta; deduction up to N 1, 00,000. 50 Investments in #ublic #rovident Fund 1##F2
Like 9SC, 8ublic 8rovident "und <88"+ is also supported by the Indian government. /n investment of minimum N 200 and ma;imum I9A. 100,000 is reuired to be deposited in a fiscal year. The prospective investor can create it 88" account in a '8 or head post office or in any sub4divisions of the nationali(ed bank. 88" also falls under Section ?0C of IT /ct so investors could gain income ta; deduction of up to N 1, 00,000. The rate of interest of 88" is
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Financial Literacy Awareness
evaluated yearly with a lock in tenure of ma;imum 12 years. The basic rate of interest in 88" is ?H. 60 Investments in Stoc *aret
Indian Stock market is very fluctuating. / smart portfolio positioned for long4term growth includes strong stocks from different industries. 7efore investing in stock market one should be prepared to assume risk euivalent to sum invested in the market. Investing in share market yields higher profits. Influenced by unanticipated turn of market events, stock market to some e;tent cannot be considered as the safest investment options. &owever, to accrue higher gains, an investor must update himself on the recent stock market news and events. 70 Investments in *utual Funds
-utual "und firms accumulate cash from willing investors and invest it in share market. Like stock market, mutual fund investment are also entitled for various market risks but with a fair share of profits. ne should select mutual fund schemes based on all or some of the following criteria* Long term and Short Term 8erformance Consistency in Aeturns 8erformance during bullish and bearish phases "und -anagers performance with the funds operations / simple simple way to select a mutual fund scheme to invest in is to select a 2 star or star rated fund from one of the reputed rating agencies 80 Investments in 9old Deposit Scheme
Controlled by S7I, 'old eposit Scheme was instigated in the year 1@@@. Investments in this scheme are open for trusts, firms and &E"s with no specific upper limit. The investor can deposit invest minimum of !00 gm in e;change for gold bonds holding a tariff free rate of interest of H 4 H on the basis of the period of the bond varying with a lock in period of to > years. -oreover, 'old bonds are not entitled of capital gains ta; and wealth tariff. The sum insured can be accrued back in cash or gold, as per the investors preference. :0 Investments in Real 'state
Indian real estate industry has huge prospects in sectors like commercial, housing, hospitality, retail, manufacturing, healthcare etc. Calculated realty demand for IT$ITBS industry in !010 is estimated at 120mn s.ft. around the chief Indian cities. Termed as the 3money making industry3, realty sector of India promises annual profits of 0H to 100H through real estate investments investments
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;0 Investments in '
8rivate euity is a type of asset consisting of euity securities in private companies that are not publicly traded on stock e;change. / private euity investment will generally be made by a private euity firm, a venture capital firm or an angel investor. 8rivate Buity is e;panding at a fast pace. India acuired ES O1.2 billion in !00? under euity shares and featured among the top > nations in the world. In !010, the total euity investment is predicted to increase upto ES !0 billion. Indian euities promise satisfactory returns and have more than =2 euity investments firms functioning under it. /s ranked by the 8BI 00, the 10 largest private euity firms in the world are* 1.T8' Capital !.'oldman Sachs 8rincipal Investment /rea .The Carlyle 'roup .Dohlberg Dravis Aoberts 2.The 7lackstone 'roup =./pollo 'lobal -anagement >.7ain Capital ?.C6C Capital 8artners @."irst Aeserve Corporation Corporation FIN-NCI-+ 'D,C-(ION
/n increased need for financial education is felt in both developed and developing countries. In developed countries, the increasing number of financial financial products products,, its comple; comple;ity ity,, importan importance ce of retireme retirement nt savings savings,, increasedgrowth increasedgrowth of secondary market has made the imparting of financial educat education ion imper imperati ative ve for for all age group groups, s, inclu includin ding g studen students ts so that that individuals are educated about financial matters as early as possible in their lives. In thedeveloping countries, the growing number of investors, tech techni nica call lly y adva advanc nced ed fina financ ncia iall mark markets ets,, libe libera rali lise sede deco cono nomy my etc. etc. neces necessit sitates ates impar impartin ting g of finan financia ciall educat education ion for for better better op opera eratio tion n of markets and economy and inthe interest of investor. "urther imparting of financial education is international concern due to growth ofinternational transactio transactions, ns, internat internationa ionall financia financiall instrum instruments ents like /A, /A, 'A, IA etc., mobility of individuals from one country to another etc. Components of Financial 'ducation
The importance of starting nowP Time value of money and compound interest. 8lanning and budgeting. 1?
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Credit and debit. Investment and savings. Implication of ta;es. 8rotecting your money INI(I-(I)'S (-='N SO F-R ON FIN-NCI-+ +I('R-C% IN INDIR$I>s initiatives
Aeserve 7ank of India has undertaken a pro#ect titled 38ro#ect "inancial Literacy3. Literacy3. The ob#ectiv ob#ectivee of this pro#ect is to dissem disseminate inate inform informatio ation n regarding the central bank and general banking concepts to various target groups,including school and college students, women, rural and urban poor, defense defense personnel and senior citi(ens.The pro#ect envisages a multi pronged approach. The pro#ect has been designed to be implemented in twomodules, one module focusing on the economy, A7I and its activities, and the other other mo modu dule le on genera generall bankin banking. g.The The materi material al is create created d in Bnglish and other vernacular languages. It is disseminated to the target audience withthe help of banks, local government machinery, schools and colleg colleges es throu through gh prese presenta ntatio tions ns,, pamphl pamphlets ets,, brochu brochures res,f ,film ilmss and also also through A7Is website. S'$I Initiatives
Securities B;change 7oard of India has embarked financial education on a nationwide campaign. To undertake financial education to various target segmen segments ts vi(. vi(. schoo schooll studen students ts,, colleg collegee stud student ents, s, workin working g e;ecut e;ecutive ives, s, middleincome group, home makers, retired personnel, self help groups etc., SB7I has empanelled Aesource 8ersonsthroughout India. The Aesource 8ersons are given training on various aspects of finance and euipped with theknowledge about the financial markets. These SB7I Certified Aesource 8ersons organise workshops to thesetarget segments on various aspects vi(. savings, investment, financial planning, banking, insura insurance nce,, retire retiremen mentpl tplann anning ing etc.In etc.Inves vestor tor educat education ion prog program ramss are conducted by SB7I through investor associations all over the country. Aegionalseminars are conducted by SB7I through various stakeholders vi(. vi(. Stoc Stock k B; B;ch chan ange ges, s, epo eposi sito tori ries es,, -u -utu tual al"u "und ndss /ssoc ssocia iati tion on,, /ssociation of -erchant 7ankers etc. SB7I has a dedicated website for investor educationwherein study materials are available for diss dissem emin inat atio ion. n. SB7I B7I also also pu publ blis ishe hess stud study y mate materi rial alss in Bn Bngl glis ish h andvernacular languages. Ender 36isit SB7IJ programme, School and coll colleg egee stud studen ents ts are are enco encour urag aged ed to visi visitS tSB7 B7II and and un unde ders rsta tand nd its its functioning. SB7I has recently set up SB7I &elpline in 1 languages
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wherei wherein n throug througha ha toll toll free free num number ber,, inves investor torss acros acrosss the the count country ry can access and seek information information for redressal of their grievancesand guidance guidance on various issues.
*inistry of Corporate -ffairs1*C-2 Initiatives
"inancial literacy allows to fully appreciate opportunities and associated risks, take informed decisions and participate actively in the economic growth growth story story of the count country ry by conve converti rting ng saving saving into into inves investme tments nts.. -ini -inist stry ry ofCo ofCorp rpor orat atee /ffai ffairs rs <-C/ <-C/++ has has a dedi dedica cate ted d appr approa oach ch for for empowering investors through education and awarenessbuilding. -C/ on !>th September, !00> launched a website www.iepf.gov.in. It provides information information about about IB8" and the various activities activities that have been undertaken$ funded by it. This website provides information on various aspe aspect ctss ssuc uch h as role role of capi capita tall mark market et,, I8 I8 inve invest stin ing, g, -u -utu tual al "und "und Investin Investing, g, Stock Stock Investin Investing, g, Stock Stock Tradin Trading, g, eposito epository/c ry/ccoun count, t, ebt -arket, erivatives, Indices, Indices
IRD->S Initiatives on Financial 'ducation
Insura Insurance nce Aegula Aegulator tory y and evelo evelopm pment ent /uthor uthority ity has taken taken vario various us initiatives in the area of financial literacy. /wareness programmes have been conducted on television and radio and simple messages about the rightsand duties of policyholders, channels available for dispute redressal etc. have been disseminated throughtelevision and radio as well as the print media media through sustained campaigns campaigns in Bnglish, Bnglish, &indi &indi and 11 11 other Indian languages. IA/ IA/ condu conducts cts an annual annual semin seminar ar on po polic licy y holde holderr prote protecti ction on and welfare and also partiallysponsors seminars on insurance by consumer bodies. IA/ has got a pan India survey on awareness levelsabout insurance carried out through the 9C/BA in a bid to improve on its !0
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strate strategy gy of cratin crating g insu insuran rance ce awaren awareness ess.IA .IA/ / has also also brou brough ghtt ou outt publications publications of 8olicyholder 8olicyholder &andbooks &andbooks as well as a comic book series on insurance./ dedicated website for consumer education in insurance is on the verge of launch IA/s Integrated 'rievance -anagement System
#FRD- Initiatives on Financial 'ducation
The 8ensi 8ension on "und "und Aegul Aegulato atory ry and evelo evelopm pment ent /utho /uthorit rity y, Indi Indias as youn yo unge gest st regu regula lato torr has has been been enga engage ged d in sp spre read adin ing g so soci cial al secu securi rity ty messages to the public. 8"A/ has developed "/R on pension related topics on its web, and has been associated with various non government organi(ations organi(ations in India in taking the pension services to the disadvantaged community. 8"A/s initiatives have become more broad4based with direct mass publicity on 98S 4 both as individual individual model through through 88s and group models through /ggregators. 8"A/ has issued advertisements in print medi mediaa aand nd elec electr tron onic ic medi mediaa thro throug ugh h radi radio o and and tele televi visi sion on.. 8"A 8"A/ / appo appoin inte ted d inte interm rmed edia iari ries es are are call called ed /gg ggre rega gato tors rs whoa whoare re dire direct ctly ly responsible for pension awareness mostly in vernacular languages and in line with socio4economic sensibilities. *aret players Initiatives on Financial 'ducation
Commercial banks are increasingly reali(ing that they are missing out on lar large segm segmen entt of finan inanci cial ally ly illi illite tera rate te and and e;cl e;clud uded ed segm segmen entt of prospective prospective customers. customers. /lso, /lso, in view of the national emphasis on electronic benefit tran transf sfer er the the comm commer erci cial al bank bankss have have init initia iate ted d vari variou ouss meas measur ures es for for creating awareness through "inancial Literacy and Counseling Centers and Aural Self Bmployment Training Institutes on financial literacy. The ob#ective of these centers is to advise people on gaining access to the financial system including banks, creating awareness among the public about financial mana manage geme ment nt,, coun counse seli ling ng peop people le who who are are stru strugg ggli ling ng to meet meet thei their r repa repaym ymen ento tobl blig igat atio ions ns and and help help them them reso resolv lvee thei theirr probl roblem emss of indebtedness, helping in rehabilitation of borrowers indistress etc. Some of these credit counseling centers even train farmers$women groups to enable them to starttheir own income generating activities to earn a reaso reasonab nable le liveli liveliho hood od.. Bven Bven top top manage manageme ment nt of commer commercia cialba lbank nkss is
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undertaking utreach visits to villages with a view to spread financial literacy. Similarly, many Stock B;changes, 7roking &ouses and -utual "un und ds have ave ini initiat tiatiives in the fiel ield of financi ancial al edu educati catio on that hat spaw sp awns nsco cond nduc ucti ting ng of sem seminar inars, s, issu issuan ance ce of do dos s and and do don nts ts,, and and newspapercampaigns. Insurancecompanies too, carry out campaigns and other educational activities for generic education in insurance
Financial Inclusion "inancial "inancial inclusio inclusion n or inclusiv inclusivee financin financing g is the delivery delivery of financial financial services at affordable costs to sections of disadvantaged and low4income segmen segments ts of socie society ty,, in contr contrast ast to finan financia ciall e;clu e;clusio sion n where where those those services are not available or affordable. Why Financial Inclusion in India is Important?
The policy makers have been focusing on financial inclusion of Indian rural and semi4rural areas primarily for three most important pressing needs* /0 Creating a platform platform for inculcating inculcating the habit to save money 5 The lower income category has been living under the constant shadow of financial duress mainly because of the absence of savings. The absence of savings makes them a vulnerable lot. 8resence of banking services and products aims to provide a critical tool to inculcate the habit to save. Capital formation in the country is also e;pected to be boosted once financ financial ial inclu inclusio sion n measu measures res materi materiali ali(e, (e, as people people mo move ve away away from from traditional modes of parking their savings in land, buildings, bullion, etc. !0 #roviding formal credit avenues 5 So far the unbanked population has been vulnerably dependent of informal channels of credit like family, friends and moneylenders. moneylenders. /vailab /vailability ility of adeuate and transparent credit from formal banking channels shall allow the entrepreneurial entrepreneurial spirit of the masses to increase outputs and prosperity in the countryside. / classic e;ample of what easy and affordable availability of credit can do for the poor is the the micro4finance micro4finance sector. sector. 0 #lug gaps and leas in public subsidies and "elfare programmes 5 / considerable sum of money that is meant for the poorest of poor does not actually reach them. )hile this money meanders through large system of government bureaucracy much of it is widely believed to leak and is unable to reach the intended parties. 'overnment 'overnment is therefore, pushing for direct cash transfers to beneficiaries through their bank accounts rather than subsidi(ing products and making cash payments. This laudable effort is e;pected to reduce government%s subsidy bill
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Financial Literacy Awareness
of the the su subs bsid idy y that that is leak leaked ed++ and and prov provid idee reli relief ef on only ly to the the real eal beneficiaries. /ll /ll these efforts reuire an efficient and affordable affordable banking system that can reach out to all. Therefore, there has been a push for financial inclusion. inclusion. )hat are the steps taken by A7I to support financial inclusion A7I set up the Dhan Commission in !00 to look into financial inclusion and the recommendations of the commission were incorporated into the mid4term review of the policy
The banking systems have started to adopt the business correspondent mechanism to facilitate banking services in those areas where banks are unab un able le to op open en bric brick k and and mo mort rtar ar bran branch ches es for for cost cost cons consid ider erat atio ions ns.. 7usiness Correspondents provide affordability and easy accessibility to this unbanked population. /rmed with suitable technology, the business corr corres espo pond nden ents ts help help in taki taking ng the the bank bankss to the the do door orst step epss of rura rurall households. C0 '$( @ 'lectronic $enefits (ransfer 5 To plug the leakages that are
present in transfer of payments payments through the various various levels of bureaucracy, bureaucracy, government has begun the procedure of transferring payment directly to accounts of the beneficiaries. This human4lessJ transfer of payment is e;pected to provide better benefits and relief to the beneficiaries while reducing government%s government%s cost of transfer and monitoring. nce the benefits starts to accrue to the masses, those who remain unbanked shall start looking to enter the formal financial sector. Ahat more is to be done for financial inclusionB
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Financial Literacy Awareness
"inancial inclusion of the unbanked masses is a critical step that reuires political will, bureaucratic support and dogged persuasion by A7I. It is e;pect e;pected ed to un unlea leash sh the the hu hugel gely y un untap tapped ped potent potential ial of the bo botto ttom m of pyramid section of Indian economy. economy. 8erhaps, financial inclusion inclusion can begin the ne;t ne;t revolution revolution of growth growth and prosperity. prosperity.
!OA (O D')'+O# FIN-NCI-+ +I('R-C% It is never too early, or too late, to begin developing financial literacy, taking control of your finances, and putting yourself on the path to financial security. 7eing financially literate allows one to earn more, spend less, and get the things he or she really wants. To develop financial literacy at any age, follow these steps. Become familiar with your household finances
Dnow how much money you have coming in, how much goes out, and where it goes. There are several things that you can do to familiari(e yourself with your finances* 1. Aeview your your bank statements. "ind out out how much of your money money goes into the bank and for what, other than your monthly bills, it comes out. !. 'o through through your monthly monthly bills. bills. Mo Mou should should know e;actly e;actly whom you pay each month, for what, and how much you pay them. . Scrutini(e your credit card card statements. statements. Learn how much much you you pay on your cards each month, what your total balance is, and how you use your cards. . Track your loans. Dnow Dnow how much you owe and how how long long it will will take to pay if off making the regular monthly payment each month. 2. Aeview Aeview investmen investmentt account account statements statements.. "ind out where where your your money is invested, and how much that investment is earning you each year. =. btain a copy copy of your your credit report report and read it. Mo Mou are entitled to one free copy each year from each of the three credit reporting agencies Set a financial goal.
"inancial responsibility is easier when you are working towards a goal. ecide to remodel the bathroom, purchase a new vehicle, or upgrade your television set. It does not matter what your goal is, #ust that it is something you want for which you will have to save. !
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Develop a budget and stic to it 0
nce you know how much money you have coming in and going out, and you have a financial goal, you will need to develop a budget that allows you to save towards your goal. To develop a budget that you can stick with* Deep a record of your monthly spending for several months. Include groceries, gasoline, clothing, lunches and dinners out, dry cleaning, school e;penses, etc. Mou want to be sure that your record is an accurate picture of how you spend your money. )rite a spending plan using your spending record as a guide, eliminating unnecessary unnecessary e;penses, and decreasing those, which may be too high. Aevise your budget as necessary. )hen monthly bills change or are eliminated, your financial goals become different, or your income increases or decreases, a change in the budget is necessary. Mour budget must must be fle;ible fle;ible in order order for you you to stick with it. •
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Discuss finances openly and honestly! and stay involved.
'enerally, one spouse is in charge of the finances, but that is no e;cuse for the other to not know where the money goes, and be involved in financial decisions. Mou do not have to know where every dime your spouse spends goes, nor does he or she need to know where every dime you spend goes, but you should both be aware of your financial situation and be involved in the big financial decisions. "earn the difference between good debt and bad debt.
9ot all debt is created eual. &ere is how to tell the good debt from the bad debt* ebt, which creates value and helps you to build wealth, is good debt. The most common e;ample of good debt is a mortgage. The value of the home increases as the amount a mount of the debt decreases and you build euity in the home. School loans are also considered good debt because of the potential value of a degree you earn acuiring the debt. ebt, which continues to increase, as the item purchased with it decreases, is bad debt. Credit cards are the number one bad debt among consumers. The items purchased on the card decrease in value, while the interest you are charged on them increases each month you do not pay off the credit card. Car loans are also bad debt because the value of the car decreases more uickly than the principle of of the loan. •
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Financial Literacy Awareness
#void #v oid common money management mistaes mistaes00
There should be more money coming in than there is going out. ftentimes, simple things people do or do not do, throws that balance out of whack without them reali(ing it. Living on credit. Charging merchandise to credit cards or taking out loans to purchase large ticket items is not living within your means. If you are not living within your means, you are incurring bad debt, which which may dig you into a financial hole, hole, of which which you cannot get out. 9ot setting setting financial goals. goals. It may not sound sound like a huge huge mistake to not have a financial goal, but if you have no real reason to manage your money well, you are not as likely to do it. / financial goal will give you something to look forward to and work towards. Calling lu;uries items necessities. •
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$ducate yourself on personal finance
Look for organi(ations in your community that can help you learn more about personal finance, with articles, activities, and classes. 8laces to check for information include banks or credit union, nonprofit housing organi(ations, employee assistance programs, and religious organi(ations. •
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The study has been conducted among undergraduate students in -ulund College of Commerce with a view to understand the level of financial literacy awareness by using a uestionnaire. -SS,*#(ION The study was conducted under the assumption that the students have financial resources in the form of pocket money, Barning or Savings. Statement / #reparation of budgets 70 60 50 40 NO.OF PPL TOT TOTAL
30 20 10 0 YES YES
NO
ption Aesponse Mes 0 9o =0 Statement 3 #attern of budgeting
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60
50
40
no.o!""l
30
# o#al 20
10
0 Always
/nswer /lways ccasional 9ever
Occasional
Neve
Aesponse !0 20 !@
Statement 4 =eeping trac of 'xpense
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60
50
40
30
Seies 1
20
10
0 T$ T$A%&
'O NT T$A%&
ption Deep track 9o track Cant say written Aecord
'NT &N(
($ $E%O$ E%O$'
Aesponse !=$100 2>$100 >$100 10$100
Statement 5 Control on expenses
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Financial Literacy Awareness
70 60 50 40 NO.OFPPL
30 20 10 0 No con#ol
ption 9o control control "luctuates Cant say
Fl)c#)a#es
%an# say
Aesponse 0 =2 2
Statement 6 Factors instrumental for Saving Saving
0
1
Financial Literacy Awareness
Seies 1 70 60 50 40 30 20 10 0
En # e#n*#.
E+ )c a # io n
,nves #*en#
O#-es
Seies 1
ption Bntertainment Bducation Investment thers
Aesponse 2@ @ 1! !0
T&BAS4 technology, gifts,vacations,marriage. entertainment entertainment include casual ca sual outings, hotel visits, concerts etc.
Statement 7 Sources for seeing assistance in money management0
1
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Financial Literacy Awareness
50 45 40 35 30 25
Seies 1
20 15 10 5 0 Fa*ily
Fien+s
ption "amily "riends 7anks$"in. Institution Internet
an/sF,
,n#ene#
Aesponse = 1> 1
Statement 8 Financial planning observed
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Seies 1 60 50 40 30 20 10 0
no ne
)n" la nn e+
" la nn e+
s o *e
Seies 1
ption
Aesponse
9one
12
Enplanned
2!
8lanned
!0
Some
1=
Statement : -vailing credit cards on being approached by Financial Institutions
Financial Literacy Awareness
Seies 1 60 50 40 30 20 10 0
Yes
no
$e!)s e!)se+ e+
Seies 1
ption Mes 9o Aefused
Aesponse = 2 10
Statement ; -"areness -"areness about financial products
2
Financial Literacy Awareness
Series 1 70 60 50 Seies 1
40 30 20 10 0 All
ption /ll -ost "ew 9one
os#
Few
None
Aesponse = !@ = 0
Statement / *edia that influence information about financial products
2
=
Financial Literacy Awareness
Series 1 50 45 40 35 30
Seies 1
25 20 15 10 5 0 News"a"es
Television
social ne#w/
ption
Aesponse
9ewspapers
!=
Television
Social networking sites
10
Internet
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=
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Financial Literacy Awareness
FINDIN9S The study conducted resulted in the following findings* 1+ The students students budg budget et on an infreu infreuent ent basis. basis. !+ The e;pense control is low and tends tends to go out of budget. + The factors for saving saving were found out out to be short term e;penditures + The opinion opinion of "amily is very influential influential in financial financial activities and money management. 2+ "inancia "inanciall goals are undeterm undetermined ined by many studen students. ts. =+ The students students are are less attract attracted ed to credit credit cards. cards. >+ The awareness about financial products is high high among among students and television plays a ma#or role in awareness.
R'CO**'ND-(IONS
1. !. . . 2. =.
Thoug Though h financ financial ial prod product uctss and concep concepts ts are famili familiari arised sed from from academics, the lack of e;posure to financial activities in reality results in average level of awareness /rrange Seminars in the the College College to to create financial literacy. literacy. Conduct competitions competitions such such as Rui( to draw interest interest of of students students Studen Students ts should should use media media like like intern internet et to update update thems themselv elves es on new products and concepts. Students Students should should read newspap newspapers ers relating relating to finance finance and develop develop a keen approach towards money management "inancia "inanciall Institutio Institutions ns should should make more use of Social Social 9etworkin 9etworking g sites to create awareness as they have a great outreach. n a broad broader er level, level, the Enivers Eniversit ity y shou should ld introdu introduce ce an academic academic sub#ect on financial literacy for all streams like /rts and Science.
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CONC+,SION The stud The study y made made on the the dif differen erentt aspe aspect ctss of fina financ ncia iall lite litera racy cy and and undergraduate students brings me to a following conclusion* There is immense need to develop financial literacy awareness in India. The 'overnment and /uthorities like A7I, SB7I etc are taking efforts to create financial literacy awareness. The need to develop financial knowledge knowledge in Indian society is low and meas measur ures es like like "in "inan anci cial al incl inclus usio ionJ nJ will will play play a ma#or a#or role role in developing this need. 8arent 8arentss shou should ld take take effort effortss to create create sensi sensitiv tivit ity y towar towards ds financ financial ial planning and inculcate need for budgeting in children from their teenage. The stud student entss shou should ld chang changee their their casual casual attitu attitude de toward towardss financ financee knowl kn owledg edgee and un under derst stand and impo importa rtance nce of awaren awareness ess of finan financia ciall activities. •
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