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What Is Financial Literacy and Why Is It Important?

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Understanding Financial Literacy in India

The importance of financial literacy cannot be overstated in India, as it is in any country. India, as one of the world’s fastest-growing economies, has witnessed major economic shifts. The financial literacy rate in India is far behind other countries, which is alarming. India is home to almost 20% of the world’s population, but 76% of its adults do not even understand the basics of finance.

Compared to the rest of the world, India has a significantly low level of Financial Literacy. As a result of these changes, financial literacy has become even more important for individuals, families, and the nation as a whole.

Financial Literacy is the ability to understand basic financial concepts and possess the knowledge and skills to make informed and effective financial decisions. It involves knowing how to generate, spend, invest, and save money, with a focus on strategic investment planning. Managing your finances well means making the most of the financial products and resources available to you.

What is the importance of financial literacy in India?

Financial literacy is still not a priority in India like it is in other developed nations. Investments and financial decisions are poor when one lacks basic financial knowledge.

Therefore, most people invest in short-term investment plans and physical assets to achieve their personal goals, which are less beneficial and do not contribute to the growth of the economy.  

According to the survey, India’s financial literacy rate has consistently lagged behind the rest of the world. In the coming years, a developing country like India must realize the importance of financial literacy as such poor financial literacy can prove to be a major setback to its ambition of becoming an economic superpower.

How do other nations differ in their responsibilities?

Most nations now place a high priority on financial literacy because understanding basic financial concepts allows people to manage their wealth in a more organized manner which encourages economic growth. People with appropriate financial education and knowledge make better financial decisions and utilize the available financial resources effectively. The American Credit Union Movement initiated financial literacy in the United States in 1908.

Also Read: Key Role of Financial Literacy in Empowering Women Entrepreneurs

How should the situation be handled?

To improve our financial knowledge, we should also impart financial education to our children, as they are our future. In addition, the government should make financial education compulsory in schools and colleges.

The government needs to run campaigns to educate people about the importance of financial literacy. To live a financially stable life, governments, banks, insurance companies, and financial institutions should educate the public about various financial concepts and investment opportunities. Growing economies require financial stability and financial inclusion.

The opportunity to provide financial literacy to all sections of society in India is enormous. Priority should be given to reaching out to the uneducated, poor, and economically backward people with limited access to financial services, who constitute the majority of society. Basic economic concepts should be taught to them for free.