Smart definitions by RBI’s Deputy Governor SS Mundra, but we are struggling for solutions
Financial literacy—and how to tackle it—remains a major concern for regulators in India. The challenge is to get people to understand the many money-traps before they lose a chunk of their savings. Our efforts through Moneylife Foundation show that this easier said than done. At a speech at Pune in June, SS Mundra, deputy governor of the Reserve Bank of India (RBI), had an interestingly upbeat take on how to achieve financial literacy. He calls it the ‘Possible Trinity’ (as opposed to the macro-economic concept of the Impossible Trinity—stable foreign exchange rate, free capital movement and independent monetary policy).
He defines Possible Trinity as financial inclusion, financial literacy and consumer protection and goes on to divide financial illiterates into five types:
The Wise Illiterates: These are the guys who fall for ponzi schemes, exotic derivatives and exchange scams and include individuals as well as corporates. Mr Mundra says that this class has the resources at its command and understands the risks, but still falls into traps with ‘unnerving regularity’.
Greed-driven Illiterates: These are also educated people who understand risks. But, in their case, greed overpowers reason. This is the type that falls for lottery scams and Nigerian scams as well as emotional traps on social media.
Information-deprived Illiterates: This includes the rapidly growing middle-class. They may be educated but are not financially literate enough to access information that is easily available from financial product companies.
Illiterate Illiterates: This consists of 300 million people who are truly illiterate and are part of the financial inclusion effort of banks.
Kindergarten Illiterates: These are young students who, Mr Mundra thinks, are an important segment that need to be part of any financial literacy drive.
And, finally, Mr Mundra himself is in a dilemma about how to classify the important segment of ‘housewives’ who may also fit into other definitions but are a key target because of their potential to influence households and children.
Mr Mundra then goes into a discussion on how to reach out to each of these target groups and the various initiatives of the government, its many committees, of the banks and RBI. Unfortunately, this is where the speech is weak. All efforts born out of a government fiat are bound to be perfunctory and will have limited impact. Over the past five years, Moneylife Foundation has conducted 250 seminars and programmes that have tried to reach out to the first three segments identified by Mr Mundra. We have barely scratched the surface. The need of the hour is empathy and direct communication, rather than check-box programmes that banks and financial intermediaries are compelled to conduct due to government fiats but yield no results.