There have been many a study on financial illiteracy…and the conclusions are clear:

a. Financial literacy will ensure that there are far lesser number of financial frauds.

b. People who are financially literate will (hopefully!) ask for simpler and better products

c. If they buy through an intermediary, they will ensure that the product is properly understood, and so is the paper work.

d. They will have reasonable expectations from financial products and understand the Risk and Reward ratio

e. Impact of inflation, and Real Returns

f. Portfolio Diversification and reduction of  risk

g. Clear understanding of Risk – short term risk is different from long term risk – and hence short term products are saving products and long term products are  investment products.

the benefits are just too huge. However, frankly there seems to be no consensus building up on what exactly they need to know. The financial industry especially what is called the ‘Big Finance’ in the US is out to sell financial porn and is not too keen to simplify further. Let us see what people need to know and what are the problems:

a. Power of starting early and COMPOUNDING: i have written so much about this, that it will mean repetition…so just go to the search and find articles on compounding….

b. Mortgage Financing: Understanding the rent or buy decision is likely to help. Understanding that tax breaks are NOT AT ALL attractive….etc. would be useful too.

c. Insuring is not investing – and Investing is not Insuring.

d. Insurance is a complicated product, it is worth having a NEUTRAL advisor who will help you with the choice, filling up the form and translating agent speak. (by the way I have received a letter from my insurer – and I wish it were in English. Or I do a communications training for the WHOLE company)

However all these basic things (which can be successfully taught at Bcom level or even at class XII level – before the kids go away to college).

Will it happen? NO. No with a capital N and capital O. It is in the interest of the government of India to keep people illiterate…..or who else will leave tons of money in savings account and who will buy LIC policies….?

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  1. I THINK a big part of literacy is needed for the people in finance industry itself. And it should go something like this.

    Just because they work in financial industry and everything they do is related to money (of the mass), they don’t deserve a part (percentage) of it always 🙂 They of course deserve a fair remuneration for their hard and intelligent work and contribution to society as much as any other person contributing to the society deserves. Amen !

    Regards

  2. Even so called financially literate persons behave like other (herd mentality) Many people studied B.Com., CA, CFA etc (sorry to say but employees working in Private Insurance Companies, Banks) also make huge investment in LIC, NSC, Post office, FDs etc.

    They invest in equity for short term and Debt for Long Term.

    If Big Daddy of Finance USA people are so literate on Financial issues, today they may not have such situation what they are facing today – biased.

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