Why Financial Literacy?

They said it:

"We are not taught financial literacy in school. It takes a lot of work & time to change our thinking and to become financially literate" - Robert Kiyosaki 

"If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest" - Benjamin Franklin 

Financial Market of India is treated as one of best financial markets of the world, in terms of Technology, Management & Controls. Also, India has the highest rate of savings. We Indians save more than 30% of our GDP (gross domestic product)! 

Then what is the need for financial literacy in India? The answer lies in other questions - what do we do with the saved money? How do we invest it? 

Traditionally, a common Indian invests his money either into the Bank Deposits, Bonds, PPF or into gold, silver, house, etc. We do not invest in the modern financial markets. Maximum amount (i.e. more than 50% of savings) is invested in this traditional way & minimum (i.e. +/-6% of savings) amount is invested in equities, mutual funds, etc.

How is this linked with Financial Literacy? There are many better alternatives (better in terms of returns, liquidity, etc) available for aforesaid traditional investments. However, these options make financial markets, little complex to understand. While taking important financial decisions such as child education, marriage, etc the investor finds himself lost into this ocean. Then he takes decisions based on the half cooked advice of his friends and relatives!  While on one hand he is cheated by some fraudulent financial companies or on the other hand sometimes Government's financial policies add to the fuel. In addition, inflation decreases value of money. 

What is the result? Investor loses his money in  the long term rather than gaining more! Under these circumstances, the investor does not invest in good products. When his decisions are proved wrong, the investor loses confidence in the modern investment options. 

In light of the above, it always makes sense to become 'Financially Literate' & an 'Intelligent Investor'.

Financial literacy means getting knowledge of own financial goals, financial markets, investment options, financial concepts & risks. In short, when a person becomes financially literate, he tries to find out the answers to the following questions:

1) What are my financial goals?

2) How much saving is needed to achieve the same?

3) Do I have any plan for achieving the goal?

4) Do I prepare household budget?

5) Which investment option is good for me?

6) What is my risk appetite? - low, medium, high?

7) Do I make changes in my financial plans based on my growing age, changing monetary situation, etc?

While undergoing this process, the investor becomes wiser & with great discipline he manages his own finances. Due to this, he remains financially safe in spite of taking appropriate & calculated risks on one hand; and on the other hand he remains financially healthy. With this, he also gives an indirect boost to the national economy.

Therefore, it is necessary to transform our nation's status from the best saver to smart investor too! For this, financial literacy is a MUST!