Learning
The Fad of Financial Literacy
Crores being blown up, while aggrieved investors don’t get redress
 
Financial literacy is as much a fad today as corporate governance was after the global accounting fraud had engulfed top multinationals, at the turn of the century. In the past decade, we have seen regulators pooling investors’ own money (in the form of unclaimed dividends and interest on various financial instruments as well as bank and corporate deposits) into large funds which are spent on conducting financial literacy seminars and issuing advertisements on how to be smart with money. 
 
The amounts available for this exercise are huge; but significantly, investors’ money is being spent without any tangible outcomes. The ministry of corporate affairs (MCA) and the Reserve Bank of India (RBI) have several thousand crores of rupees in their kitty for investor education and protection. Stock exchanges and financial regulators have a few hundred crore rupees each. In most cases, there is no real effort to trace the investors who have not claimed their financial benefits or to ensure that their heirs receive the funds due to them. 
 
RBI had, at least, asked banks to publish the list of bank account-holders who had not claimed their deposits, before the money was transferred into a fund-pool that will be used for investor education. MCA, with over Rs1,000 crore in the Investor Education & Protection Fund (IEPF), has a clunky and rather difficult process for tracing if a person’s unclaimed financial benefits have been transferred to the IEPF. But those who were unable to claim dividends or benefits due to litigation that invariably exceeds seven years are left high and dry. 
 
MCA has unilaterally cancelled the accreditation of all investor groups and prefers to work only with professional institutes under its regulatory ambit. While the IEPF website lists a few financial literacy seminars that have been conducted around the country, there is no clarity about the basis on which it decides to dole out funds. The ministry is now busy setting up a permanent IEPF authority that will give it greater flexibility in spending investors’ money.
 
Meanwhile, financial consumers, who are struggling to get dozens of companies (such as Neesa Leisure, Helios & Matheson, Elder Pharma, Unitech Constructions and Plethico Pharma) are being made to run from pillar to post without redress. The ministry, in fact, scrapped an investor helpline, funded out of the IEPF funds that used to be run by Midas Touch Investor Association without providing any reason for its action. Despite a new government in place, there is no indicator that the ministry will be made accountable for ensuring that these funds are correctly spent. 
 
The key question is: Do endless financial literacy seminars work? Research, based on behavioural economics, shows that the rational economic person does not exist. Most people are simply not wired to understand financial products and tend to translate their experience of buying consumer goods to financial products. 
 
A study published in the Journal Management Science found that almost everybody who has taken a financial literacy class, forgets what has been learnt in 20 months. So, the impact on their future financial behaviour is negligible. An article by Helaine Olen, author of Pound Foolish on Slate.com, has a title that says it all. “Stop trying to make financial literacy happen. It is a noble distraction from actual consumer protection. That is why financial services industry loves it.” We agree. In fact, our regulators love it even more. And, they have figured out a way to get access to a large pool of investors’ own money to spend without any accountability. Regulators use this money power effectively to dole out advertisements to friendly media; those who ask uncomfortable questions are left out. This probably explains why little media attention is focused on the pathetic grievance redress record of financial regulators, despite setting up online redress systems. Moneylife finds that investors with resources manage to have some investigation initiated by filing complaints with the economic offices wing of the police. However, this rarely helps them recover their money. Often, it is more good money spent to recover what is lost.

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COMMENTS

kapil bajaj

2 years ago

Ms Dalal, It's a very good article, but if you were to connect all the dots of your own arguments you'll reach conclusions that will bring into question the very domain you and Moneylife are concerned with, namely the financial sector and, by extension, the 'economy'.

Yes 'Homo economicus' is a myth, but so are all the constructs of economic theories, particularly those of the 'neo-classical economics' that currently rules the world. One can read about the 'Real-World Economics' movement (formerly called post autistic economics) on the Web to get a sense of what I am talking about.

http://www.paecon.net/PAEReview/

The new-liberal theology is, of course, a part of this whole fraud called 'economics'.

Need I say anything about another sub-fraud called 'financialization' that has been used in this neo-liberal era to paralyze not just what is referred to as the 'economy' but the whole of human societies.

You have to be honest, Ms Dalal. No one would know better than you that the so called financial system (including the capital markets) have not been created to serve the real needs of society but to create a smokescreen for transfer of resources to the parasitic elite.
(Currently, it's casino capitalism at its debauched worst while the world burns.)

No one I know explains the gargantuan fraud called the financial system better than Max Keiser.

http://rt.com/shows/keiser-report/

I applaud the element of courage and public-spiritedness in your journalism. However, I can't help noting that Moneylife has been so economical with truth as to have almost no effect in explaining to the public the global empire of falsehood that we all are entrapped in.

Nilesh KAMERKAR

2 years ago

Why investor education is futile . . . http://www.thinkadvisor.com/2014/04/07/i...

MG Warrier

2 years ago

Very pertinent points raised in this article. We have to start worrying about the responsibility of those accept the savings as deposits(called by whatever name) from public. Such deposits could be bank deposits, PF contribution or insurance premium or chit fund deposits. It should be the primary responsibility of those who ‘take’ deposits to account it and appropriate for the purpose for which the deposit is taken. Now that everyone is going to have a bank account, the last rupee payable to the individual should go to that account minimising the possibility of ‘unclaimed deposits’ in any account. Sometime back, Moneylife had published an article by me on the need for a ‘regulator for unclaimed deposits’

Subba Rao

2 years ago

The regulators have most often been caught unawares or have chosen to look the other way when there were anti-consumer products / services / policies of Insurance Companies and AMCs. While it is good to inculcate financial literacy among the masses, it does not absolve the manufacturers of financial products and their respective regulators from the wrongs being perpetrated on the unknowing customer.

B. Yerram Raju

2 years ago

NABARD paints on the buses and trains and organises a few video films and audio films in the name of financial literacy. Still many persons do not know the difference between loans and investments!! Several others do not distinguish between money and wealth.
MCA's ritualistic investor education doles are meant to reach the budget targets and not fulfill the needs of financial literacy and financial education.

Balaji

2 years ago

Its fact regulators are 'lazy' to act (though I would exclude RBI).

manhar kothari

2 years ago

MCA web site has made system for on line investors complaint so complicated that even regular user of computer since last 20 years like me failed to lodge on line complain.
It appears that there is no seriousness to solve the problem of investors.

K G Krupal

2 years ago

Helios & Matheson, Elder Pharma, Plethico Pharma are still trading under B group. Companies which failed to repay deposits, whose cheques for interest are bounced, should be brought under Z group. Investors should delink their investment decision from Stock Market quotations.

REPLY

vishal

In Reply to K G Krupal 2 years ago

when a individual were to get in to trap of dishonoured cheque he can be put behind bars for a petty amount under negotiable instrument act. What about companies issuing cheque and bouncing them? the regulators are more prone to safeguarding the bogus companies than investors.

manhar kothari

In Reply to K G Krupal 2 years ago

plethico Pharma has stooped making interest payment since April 2014 to their FD holders.

Our problems still have no definite answers
Science, after all, is only making models- mathematical constructs-which, with verbal explanations, are supposed to work. When biologists get a better model, the old one goes to the dustbin. Science is change and life itself is ceaseless change until death
 
“Insight is not the same as scientific deduction, but even at that it may be more reliable than statistics.” — Anthony Standen, In Science is a Sacred Cow (1950)
 
All living things on this planet are made from carbon, hydrogen, oxygen, nitrogen and some trace minerals. They end up becoming the same elements at the end of their journey on this planet, whatever one does with the carcass. Studies in Tennessee forests of dead animals in natural surroundings were studied. This large team of researchers, of all castes, found out that everything of the animal except bones, teeth and dry skin are eaten up by more than 522 species of living organisms, including 429 types of insects, within a week!
 
Man also comes and goes like that. However, do not ask me as to why the same carbon and hydrogen make the DNA for man in our case a worm in another case. I do not think there is an answer to the question “why” in positive sciences. Most “scientists” do not believe in God, and rightly so, because the hypothesis that “God does exist” is highly unscientific, as it can not be refuted! 
 
However, we do need an explanation as to why I am a man and my cat is a cat? God could be felt though, when the stars in the sky are out and the candles in the Church are gone. Man could still be burning the coal in his heart and help others bye and bye, to feel God. Only a man in the dumps feels God, like the lepto-quarks that no physicist has seen so far, but mankind has felt atomic energy and its fall outs.
 
Be that as it may, I am trying to drive home the greatest scientific truth that all living things are made with the same raw materials. Naturally, they are inter-dependent and not totally independent. The gene of our organelle, inside every cell, belongs to a germ and not man. How could man be proud when he needs the permission of that germ even to lift a little finger? There are ten thousand billion germs in our gut from the mouth to the anus. They keep us alive. This interdependence comes down to the human body’s organs and cells. No organ, nay no cell, could survive in isolation to keep man alive. The question, then, of organ-based specialties is the greatest myth of modern medicine and a curse on proper research into human physiology. Like the First Law of Thermodynamics, anything that divides, eventually disappears! Reductionist sciences that look at bits and pieces, to put the whole into perspective have, per force, to go wrong. Future research should be holistic, looking at the whole to understand the bits. It is true that “the whole might not be the sum total of the bits”.
 
To begin with, we looked at two very closely interdependent systems of the human body-cardiovascular and respiratory. They are so closely inter-linked that a newborn baby has the heart rhythm “mode-locked” to breathing rhythm that manifests as sinus arrhythmia. When this link goes completely disjointed, man would have to die! The interconnection between the two is brought about through the greatest friend of the human machine, the autonomic nervous system.
 
"Mode-locking" is a concept in physics, wherein the most dominant rhythm in this universe controls all other rhythms. In the human body, the most dominant rhythm is breathing. (praana). If one learns to breathe correctly, he/she would be able to control most, if not all, systems. With very complicated, computerized three-dimensional picture of the heart’s function vis-à-vis the lungs, called HRV (heart rate variability) has been achieved by us. Further studies in our laboratory, as also a couple of centres abroad with our fellows there, have given us much more information in this direction.
 
The computer pictures come out after the patient breathes normally for fifteen minutes while his dynamic ECG is being computer analysed using “Wavelet coefficient” analysis. When one talks about the “P” wave or the “ST” segment in a surface ECG, one is talking of millions of wavelets, giving the summation effect. In other words, there is no linear ST segment in a human heart. So measuring the ST segment as is conventionally done and for length, placement could be as far away from the truth as is SanFransisco from Kolkata. 
 
CHAOS” does not mean confusion in the literal sense, neither is it an acronym, it is the name of the new science of wholism, in contrast to reductionist science that looks at the molecules and extrapolates to the whole organism. “Fractal” (fractus-part) is the word introduced by Mandelbrott, a computer scientist, to denote non-integer measures. In the human body, as in any other living thing, there are no integer measures; all of them are non-integer, although we use integer measures in all our efforts, like the EF-ejection fraction of the heart. 
 
To give an example: the human heart is not oval, square, oblong, elliptical, or any other integer shape. It has its own shape, non-integer. What is the coastline of Sri Lanka? It depends on the measuring tape used. If one uses the yardstick instead of a centimeter measure, the difference could be hundreds of miles! There are studies showing fractal dimensions of cells like the neurons. How would you otherwise measure a neuron? 
 
For the beginners to understand, I recommend the simple book by James Gleick named Chaos-A New Science in the Making. My simple articles in the Jr. Assoc. Physi. India are good enough for a novice in the field.
 
To give you a cultural shock, I would give a simple example. We have been teaching students that blood pressure is the product of cardiac output and peripheral resistance. This is based on the OHM’S Law, which states, “in a straight tube, flow pressure is a product of flow volume and flow resistance!” Where is that straight tube in the human vascular tree?  Whereas the heart pumps blood upwards from the left ventricle, the aorta sooner than later, takes an about turn and then branches off losing its velocity-head in the bargain. The arterial tree after repeated branching opens eventually into the large swimming pool of the capillary bed, for the blood to be collected by the venous system. Now does one realise that our linear mathematics would not work in a dynamic human body or, for that matter, in this dynamic universe! 
 
If our mathematics were correct, the problem of hypertension would have vanished with the introduction of the alpha-beta blockers. They are supposed to reduce both the cardiac output and the peripheral resistance at one stroke! They came, they damaged, and they disappeared! The story repeats itself for most interventions based on linear relationships. Nothing in the human physiology is static and stable; everything is dynamic and changing from second to second. I have a guess, I could be wrong, stability is death and instability is life. Our preliminary studies on blood sugar fluctuations from minute to minute have given us some lead (yet to be finalized) that those who lose these chaotic fluctuations would probably go into frank Diabetes in the near future! Conjecture, indeed! I do not understand the milieu interior of Claude Bernard! Have we not given up infusing bicarbonate, after a cardiac arrest, to balance the acid-base balance, using the King’s formula?
 
These could be some of my crazy ideas. Would the thinkers in medical research prove me wrong or take it from there, as many of them have access to hi-tech and expensive laboratories and enough money from research grants. I shall be happy if I am proved wrong. I always make mistakes. I do not think biology has found its Holy Grail. Biology is still in search of it. Models in biology, in Nature, are out there to be explored in the future for the good of mankind. Science, after all, is only making models- mathematical constructs-which, with verbal explanations, are supposed to work. When biologists get a better model, the old one goes to the dustbin. Science is change and life itself is ceaseless change until death. Our problems still have no definite answers, although we do not give any credit to our forefathers.
 
 "For we, which now behold these present days,
Have eyes to wonder, but lack tongues to praise."  
                                                                                          
“As for the search for truth, I know from my own painful searching, with its many blind alleys, how hard it is to take a reliable step, be it ever so small, towards the understanding of that which is truly significant.” — Albert Einstein
 
(Professor Dr BM Hegde, a Padma Bhushan awardee in 2010, is an MD, PhD, FRCP (London, Edinburgh, Glasgow & Dublin), FACC and FAMS.)

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Sri Lankan President Sirisena’s India visit would help boost trade, relations
Apart from regular trade and industry, one area that businessmen from both nations can actively take part covers the gem and jewellery trade.  Sri Lanka is known for its gems while India is already an established leader in manufacture and export of gold jewellery
 
In his first overseas visit, after becoming President Maithripala Sirisena of Sri Lanka and Prime Minister Narendra Modi have reaffirmed their mutual trust and respect and by extending support for each other.  In this short visit, and in their presence, both the nations witnessed the signing of three agreements: one on agricultural cooperation, memorandum of understanding on Nalanda University and on cultural cooperation.
 
And the icing of the cake has come in the form of Indo-Sri Lankan Civil Nuclear Co-operation Agreement, the first nuclear partnership for Sri Lanka with any country, and has brought both the countries closer together, as never before!  This Nuclear agreement, at the moment, covers the cooperation in transfer of exchange of knowledge, expertise, training in peaceful uses of nuclear energy including use of radio-isotopes, nuclear safety, radiation safety, security, disposal of radioactive waste, nuclear and radiological disaster mitigation and environmental protection.
 
This has strengthened the mutual trust and respect for each other, and both leaders have agreed to expand the defence and strategic cooperation to include Maldives, so as to bring about a "trilateral format" effect.  Prime Minister Modi is planning a reciprocal visit, sometimes in March, which is likely to include Maldives, but the dates have not yet been announced.
 
Apart from close trade relations that have increased in the recent years, India has also begun its involvement in the reconstruction activities envisaged in northern Sri Lanka.  The project, involving the construction of some 50,000 houses for Tamils, who got displaced during the unfortunate civil war that lasted over 30 years, and this will naturally include all other related infrastructural activities in the region.
 
President Sirisena, accompanied by his wife, will also plan to stop over at Tirupathi to visit the Balaji temple before returning back to Colombo.  He is also scheduled to visit China to meet President Xi Jinping, but the dates have not been announced.
 
There are couple of issues that would need the attention of both the leaders. The first major issue relates to the 100,000 odd Sri Lankan Tamil refugees who are presently in India, and mostly in Tamil Nadu.  They have to be repatriated back to Sri Lanka to start their lives afresh and actively get involved in the reconstruction activity in the north.  The second covers the frequent conflict of interests, by fishermen, on both sides.  Fortunately, both the leaders have felt that this problem needs to be solved by a constructive and humanitarian approach by mutual consent of the fishermen themselves, as it involves their day to day livelihood.
 
Apart from regular trade and industry, one area that businessmen from both nations can actively take part covers the Gem and Jewellery trade.  Sri Lanka is known for its gems; India is already an established leader in manufacture and export of gold jewellery.
 
A workable combination of both would bring wonders to the hard working people involved in this trade.  Another area that may be interest to both is the ship building and repair industry where the opportunities are large.
 
Both nations offer good opportunities for tourism industry involving historical sites, religious centres for pilgrimage and proximity to each other. 
 
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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