We millennials belong to a very curious generation of people, with copious levels of curiosity and a plethora of ways to satisfy it. What is missing are appropriate mechanisms and informed guidance to better navigate through the different information flows thrown at us left and right. With the advent of smartphones and the internet age, the whole world is literally at your fingertips, but as is the case with inefficient allocation of resources, we have been given far too much power. and no proportionate gray matter to justify it. The same is reflected in the way we manage, rather than mismanage our finances.
Again, this is not entirely our fault. What most of us would probably do is browse a few YouTube videos on the subject, or thoroughly read Robert Kiyosaki’s bestseller, and try to extrapolate those learnings into real life. But that’s not how the cookie crumbles. Managing your finances is an art that requires discipline, patience and an open mind.
If we talk about the general level of financial literacy in the country, we come to the conclusion that it is incredibly low. According to a recent study conducted by the Securities and Exchanges Board of India (Sebi), only 27% of the Indian population is financially literate.
In such a situation, it becomes all the more important that financial literacy as a discipline be included in the curriculum of students, from their formative years. Unfortunately, that was not the case, and for good reason. First, no one really knows how to teach financial literacy, so it is very difficult to find experts in the field. Teachers usually do not have this knowledge themselves and are therefore ill-equipped to teach it further. In addition, finance is often a taboo subject in the home and we don’t talk about it openly. Parents are generally reluctant to discuss financial matters with their children for two main reasons. One is that they are probably unsure of their methodology when it comes to managing finances, and the other is that they themselves are not confident in their knowledge of the matter. Another reason that the majority of our population is not financially literate is that the world of finance, taken as a whole, is very intimidating. Financial jargon is complex, difficult to grasp, and it prevents people from going any further.
It is of the utmost importance for any citizen to be familiar with the world of finance, credit systems and debt management. Financial literacy is the synergy of these three elements and helps us make responsible decisions. An inherent lack of literacy on the subject is exactly what keeps people from accumulating their dream retirement corpus, as they end up investing in savings or insurance plans that offer minimal returns. Poor financial literacy has left millennials overwhelmingly unprepared for unprecedented financial crises.
Take the case of an unsuspecting urban student who had just come of age. The student came across an app launched by a fintech company, whose business revolved around providing payday loans. He was fascinated by the prospect of easily obtaining small loans, which could be repaid at a convenient rate. The student inevitably became addicted and that’s where he lost his life. Bewitched by the ease of obtaining these funds, he loses sight of the exorbitant figures which accumulate in the form of interest. This is a very small example, but then it illustrates just how problematic the lack of awareness of the implications of debt instruments can be, as defaults once showing up on an individual’s credit report have tend to stay there for seven years making / unable to access credit when needed.
Bringing the details of personal finance into the lives of young people during their formative years could actually go a long way in protecting them from future uncertainties and supporting themselves better by being able to explore all possible financial products and options. In addition, it would help them be better equipped to effectively meet their financial goals and mitigate their expenses through regulation.
Improving financial literacy will have a positive impact on the entire population and will significantly increase their ability to secure their future.
Financial literacy is a difficult puzzle to solve, but once mastered it can significantly ease the burdens of life. Obviously, getting a head start on the same would be of great help, and that’s what we need to start working towards.
Anand K. Rathi is the Managing Partner and Head of Strategy at Augment Capital Services LLP.
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