India has witnessed a steady upward climb in general literacy rates, but financial literacy is still a distant dream in majority of the Indian households. 

A 2019 Securities and Exchange Board of India (SEBI) survey found that only 27% of young Indian adults were financially literate. On one hand, we have a record number of new capital market investors joining the fray – a record high of 3 million Demat accounts were opened in July 2023. But are all investors well-versed or even aware of the risks associated with investing in the markets? 

The central financial regulatory bodies like Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Insurance Regulatory and Development Authority of India (IRDAI) are making concerted efforts to educate investors, but their endeavours are more concentrated on safeguarding against fraud and less about reaping the benefits from these insurance and investment products and risks associated with the same. 

Even the basics of savings (how to save and where to keep money – savings products), spending (how much to spend across different categories, and differentiating need vs. want), and budgeting (how much should I save and spend?) for a large part is lacking amongst majority of the Indian consumers. There are no central financial bodies driving this knowledge nor are the schools’ educating children on these basic concepts today. The best way forward for India to create financial literate society is by teaching fundamentals from an early age as a part of the primary or secondary education core curriculum.

Is financial literacy even considered essential? 

The National Education Policy (NEP) 2020 places significant emphasis on equipping students with practical and future-ready skills. It also includes financial literacy as a critical skill and recommends that it be included in the curriculum for adult and lifelong learning alongside digital skills, healthcare awareness, etc. The Central Board for Secondary Education (CBSE) has already announced that it has introduced financial literacy among several other vocational skills for students of Class VI and VIII. However, it is for the schools to choose which skills they choose to impart to students based on NEP 2020 recommendations. The RBI too has evolved a financial literacy module for classes VI to X in collaboration with other financial regulators that boards of various states can integrate into their curriculum. 

Clearly, the wheels for building a financially literate next generation are in motion. But how do we ensure that it becomes a core component of learning?

Right fundamentals

Financial literacy is the ability to manage one’s money efficiently and be able to lead a fulfilling life. Simply put, financial literacy is a life skill. It may, therefore, be worthwhile to consider integrating it as a part of core mandatory learning rather than an additional skill to be taught separately. 

One way to look at it would be to embed it within the subjects that are taught as part of the core curriculum. For instance, what if the curriculum could be designed in a way where science not only teaches the importance of a healthy body but the need for health insurance as well? Mathematics is not only about calculations and currency but budgeting and planning as well.

Another way to do it would be to have financial literacy as a separate subject (as it is being proposed) but include hands-on projects that will drive home the lesson we want students to take into adulthood. 

For instance, lessons on savings, credit products & insurance policies could be supplemented by research projects that asks students to evaluate various savings products offered by banks, credit products offered against home, vehicle, personal loan, credit cards, etc. & costs to them when availed, types of insurance policies available in the market to protect oneself and narrow down on products that can benefit them and their families. 

A comprehensive financial literacy module should include:

1. Savings
2. Budgeting and expense planning
3. Provisioning for emergency funds
4. Health and Team Insurance coverage
5. Borrowing
6. The importance of goal-based investing
7. Systematic investment strategies for the long term. 

Reinforcement strategies

The financial domain is ever evolving, and it wouldn’t be unrealistic to assume that by the time students pass out of school and enter the phase where their financial literacy lessons can be put into action, new innovations are likely to come. But, with the basics of financial education in place, the focus of investor education can be on new learnings in this space whether it is UPI, digital rupee, pocket insurance, alternative investments, etc.  

Let us take on the responsibility of equipping our current generation with the financial skills needed to become empowered individuals of tomorrow!