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July-September, 2007
Financial Literacy:
Reserve Bank of Indias Initiatives
V.S. Das*
Financial education or financial literacy
has assumed greater importance in the
recent years, as financial markets have
become increasingly complex and there is
also an information asymmetry leading to
making informed choices more and more
difficult for the common person.
Financial education can broadly be
defined as providing the familiarity with
and understanding of financial market
products, especially, rewards and risks, in
order to make informed choices. Viewed
from this standpoint, financial education
primarily relates to personal financial
education to enable individuals to take
effective actions to improve overall wellbeing and avoid distress in matters that
are financial.
Organization for Economic Co-operation
and Development (OECD) has defined
financial education as the process by
which financial consumers/investors
improve their understanding of financial
products, concepts and risks, and through
information, instruction and/or objective
advice, 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
grow, monitor, and effectively use financial
* Executive Director, Reserve Bank of India, Mumbai
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resources to enhance the well-being and economic security of oneself,
one's family, and one's business.
Recognizing the need for financial education, many countries, both
developed and developing, have launched financial education or
financial literacy programmes for their people. The OECD has brought
out "Recommendations on Principles and Good Practices for Financial
Education and Awareness", which is furnished below:
i)
Governments and all
stakeholders concerned should
promote unbiased, fair and coordinated financial education.
ii)
Financial education should start at school, for people to be
educated as early as possible.
iii)
Financial education should be part of the good governance of
financial institutions whose accountability and responsibility
should be encouraged.
iv)
Financial education should be clearly distinguished from
commercial advice; codes of conduct for the staff of financial
institutions should be developed.
v)
Financial institutions should be encouraged to check that
clients read and understand information, especially when
related to long-term commitments or financial services with
potentially significant financial consequences; small print and
abstruse documentation should be discouraged.
vi)
Financial education programmes should focus particularly on
important life-planning aspects, such as, basic savings, debt,
insurance and pensions.
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vii)
Programmes should be oriented towards financial capacity
building, appropriately targeted on specific groups, and
made as personalised as possible.
viii) Future retirees should be made aware of the need to assess
the financial adequacy of their current public and private
pension schemes.
iX)
National campaigns, specific websites, free information
services, and warning systems on high-risk issues for financial
consumers (such as fraud) should be promoted.
These recommendations are intended to help countries, both
developed and developing, in designing and implementing effective
financial education programmes.
In this context, some of the efforts initiated in other countries for
imparting financial education would be of interest.
In the United Kingdom, the Financial Services Authority (FSA) has
launched the biggest ever campaign to improve the financial skills of
the population and imparting education to enable a better appreciation
of the risks and rewards inherent in financial instruments. The FSA
carried out a Financial Capability Survey, covering 5300 in-depth
interviews, a representative of the UK population. The Department for
Education and Skills (DfES) in England, the Welsh Assembly in Wales,
the Scottish Executive with the support of Learning and Teaching
Scotland (LT Scotland), the Department of Education in Northern
Ireland, H. M. Treasury, the Financial Services Authority (FSA), the
Basic Skills Agency (BSA), financial services industry, community and
voluntary sector, Local Education Authorities (LEAS), schools and other
education institutions work in partnership to provide financial education
in the UK for both under-16 and post-16 age groups. For the pre-16 age
group, provision of financial education is through the statutory
education system, and differs slightly across the UK in line with each
constituent county's curriculum. The purpose is to facilitate acquisition
of skills, knowledge, understanding and responsibility. For the post16s, there are the Social Inclusion Agenda of the Government, Adult
Financial Literacy Advisory Group (AdFLAG), Adult Financial
Capability Framework, BSA Financial Literacy Project, Citizens Advice
and Community Sector, FSA Statutory Requirement and the financial
services industry.
The Bank of England Museum features exhibitions for different age
groups. The Bank has conducted a 'Times Interest Rate Challenge' for
students aged 16-18 (secondary schools). Teams of students are given
a chance to take on the role of the Bank of England's Monetary Policy
Committee, assess economic conditions and the outlook for inflation
and tell panels of judges what interest rate they would set to achieve the
inflation target of 2.0 percent. A new school resource 'Made of Money' is
aimed at secondary school students aged 1416 and describes how
the economy works and how it relates to them. For university students,
the Bank has prepared a film presenting its activities. Students and their
July-September, 2007
tutors participate in a free-guided tour of
the Bank itself, which includes multimedia
presentation on the Bank's historic and
current role, as well as an insight into the
history of money in general, history of
banknotes, gold bullion reserves and dayto-day banking operations. The Bank also
encourages staff to become involved in
the initiatives of social and educational
organisations.
In the United States of America, with a view
to improving the financial literacy and
education of persons in the United States
through development of a national
strategy, the Congress passed the Fair
and Accurate Credit Transactions (FACT)
Act in 2003. The Act included Title V, which
established the Financial Literacy and
Education Commission, made up of 20
federal agencies. The FACT Act became a
law on December 4, 2003. The strategy
recognizes that the infrastructure of
financial education can only be erected
with the cooperation of three builders: the
government, the private sector and the
individual.
The Department of Treasury has
established an Office of Financial
Education (OFE) that has a mission to
provide all Americans with the practical
financial knowledge and skills that enable
them to take informed decisions. The
Department of Treasury is working to
promote the integration of financial
education in schools by using reading and
mathematics lessons as a vehicle for
teaching personal financial topics.
Integrating financial education into
reading and mathematics courses
ensures that financial skills are taught and
reinforced year after year, with fewer
resources than would be required if
financial education courses were to be
offered separately.
In Malaysia, a Consumer Education
Programme was launched to provide
consumers with greater understanding
and to make more informed decisions of
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July-September, 2007
financial products and services. The
approach comprised (i) school
programme targeting primary and
secondary school children (ii) education
programme targeting rural folks, women,
single mothers and university students,
and (iii) provision of information to general
public. The school programmes tried to
promote savings through school adoption
programme. Briefing and workshop
sessions were conducted for rural folks,
women, etc. For the general public, two
consumer education programmes were
launched in 2003 pertaining to banking
information and insurance information.
The information dissemination was
through booklets, websites, print media,
and third party publications.
Further, a Credit Counselling & Debt
Management Agency has been started as
a subsidiary of Bank Negara Malaysia. It
provides financial counselling, advises on
financial management, and conducts debt
management and financial education
programmes.
Financial Education and
Reserve Bank of India
In India, the need for financial education is
even greater considering the low levels of
literacy and the large section of the
population, which is still out of the formal
financial set-up.
Towards this end, the Reserve Bank of
India has undertaken a project titled
"Project Financial Literacy". The objective
of the project is to disseminate information
regarding the central bank and general
banking concepts to various target
groups, including, school and college
going children, women, rural and urban
poor, defence personnel and senior
citizens. The project envisages a multi
pronged approach. The project has been
designed to be implemented in two
modules, one module focusing on the
economy, Reserve Bank and its activities,
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and the other module on general banking. The material will be created
in English, Hindi, and regional languages. It would be disseminated to
the target audience with the help, among others, of banks, local
government machinery, schools and colleges through presentations,
pamphlets, brochures, films, as also, through the Bank's website.
The Bank has also created a link on its web site for the common person
to give him the ease of access to information, in 13 regional languages,
which he can use in his dealings with banks.
Credit Counselling Centres
The absence of proper financial counselling, coupled with inadequate
financial literacy levels has often resulted in pushing the consumers
towards costlier options and eventual debt traps. Thus, there is a need
for financial counselling in all the areas.
A few banks have taken initiatives to start some centres in rural/ semi
urban areas, which offer financial education and credit counselling
services. The objective of these centres is to advise people on gaining
access to the financial system including banks, creating awareness
among the public about financial management, counselling people
who are struggling to meet their repayment obligations and help them
resolve their problems of indebtedness, helping in rehabilitation of
borrowers in distress, etc. Some of these Credit Counselling Centres
(also known as Knowledge Centres) even train farmers/ women groups
to enable them to start their own income generating activities to earn a
reasonable livelihood.
The Working Group (Chairman: Prof.S.S.Johl) constituted by the
Reserve Bank to suggest measures for assisting distressed farmers
had recommended that financial and livelihood counselling are
important for increasing the viability of credit. Further, the Working
Group constituted to examine procedures and processes for
agricultural loans (Chairman: Shri C.P.Swarnkar) had also
recommended that banks should actively consider opening of
counselling centres, either individually or with pooled resources, for
credit and technical counselling with a view to giving special thrust in
the relatively under-developed regions. In the light of the
recommendations of these two groups, the convenor banks of the State
/ Union Territory Level Bankers' Committees were advised in May 2007
to set up, on a pilot basis, a financial literacy-cum-counselling centre in
any one district in the State/ Union Territory, coming under their
jurisdiction. Further, on the basis of the experience gained, the Lead
Banks concerned were advised to set up such centres in other districts.
To conclude, economic and financial sector reforms have placed
higher disposable incomes with the public. Availability of a variety of
new financial products on both, credit and investment sides, which are
provided by a host of financial intermediaries has necessitated that the
investing public understands the nuances of each product and product
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supplier, and takes an informed decision about where he should invest.
At the same time, those who are not part of the formal financial system
need to be educated about banking and why they should have a
relationship with banks. Financial education is considered an important
element for promoting financial inclusion and ultimately financial
stability. Financial education would benefit the financially-excluded by
enabling them to understand the benefits and the ways to join the
formal financial system. It could also benefit the financially-included by
helping them make informed choices about the products and services
available in the market to their best advantage.
4.
Integrating Financial Education into School
Curricula- White paper prepared by the
United States Department of the Treasury
Office of Financial Education.
5.
Evaluation of Financial Education
Programme : Presentation of Bank N e g a r a
Malaysia at the G8 International
Conference on Financial Literacy,
November 29-30, 2006.
6.
Policy Brief July 2006, The importance of
Financial Education, Organisation for
Economic Cooperation and Development
(OECD).
7.
Jude England and Papiya Chatterjee, A
review of existing provision in the UK, A
report of research carried out by ECOTEC
Research and Consulting Ltd on behalf of
the Department for Work and Pensions,
Research Report No 275, Corporate
Document Services Financial education.
References:
1.
'The Role of Financial Education: The Indian Case' - Inaugural Address by
Dr. Y. V. Reddy, Governor, Reserve Bank of India at the International
Conference on Financial Education organised by OECD and co-hosted by
Pension Fund Regulatory and Development Authority at New Delhi on
September 21, 2006.
2.
Professor Sarah Mavrinac, INSEAD, The Business School for the World.
3.
Taking ownership of the future : Quick reference guide by the National
Strategy for Financial Literacy 2006 of the U.S. Department of Treasury.
July-September, 2007
Initiatives by RBI offices
Hyderabad office of the Reserve Bank has formulated a
multi-modal (informative display through posters,
brochures, multi-media presentations, video films,
demonstrations, computer games), multi-lingual
(English, Hindi, Telugu and Urdu) and customised
interactive strategies (like stalls in exhibitions, visits to
schools, colleges, villages, meeting with bankers,
traders, farmers, SHGs, tour of the Reserve Bank) for
spreading financial literacy among the common
persons in general and school children, college
students, farmers, women and villagers in particular.
(Source: Reserve Bank of India Annual Report 2006 07)
Chennai Office has brought out two comic books titled
'Currency Matters' and 'Bank Matters' in English and
Hindi as part of the Bank's financial education efforts.
The stories for the comic books were prepared in-house
by a team of officers, drawn from various departments
of the local office and the artwork was out sourced.
Copies of the comic books were handed over to the
officials of Government of Himachal Pradesh during the
inauguration of the Simla sub-office on July 1, 2007. The
books are being translated into Tamil.
New Delhi Office brought out a comic book on basic
banking, titled 'Raju and the Money Tree'. A Core
Committee on Financial Education, comprising of
officers from RBI, New Delhi conceived and scripted the
story of the comic book as also handled the artwork. The
comic book was brought out in English and Hindi.
Copies of the comic book were handed over to the
officials of Government of Himachal Pradesh at Simla on
July 1, 2007 coinciding with the inauguration of the suboffice. The comic book was also brought out in Braille for
the benefit of visually impaired persons. The services of
National Association for the Blind, New Delhi were taken
for adapting the story from the comic book.
(Source: Reserve Bank of India Newsletters)
Bangalore Office has released, under its FIN-LIT project,
a series of four comic books, in English and Kannada,
dealing with (i) introduction to basic banking, (ii)
deposits, (iii) SHGs loans especially agricultural loans
and other livelihood loans like Govt. sponsored
schemes, etc. and (iv) other lifestyle enhancing loans
like housing loans, vehicle loans, etc. and other products
like ATM cards debit, credit cards. A short film, based
on the frames of the books, with voice over in Kannada
has also been released. As an initiative in reaching out to
a larger audience, the Office had put up a stall in the
Mysore Dasara Exhibition where this film was screened
along with other information of relevance to the common
man. The whole project of writing the stories and doing
the illustrations was undertaken in house.
(Source: RBI, Bangalore)
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