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5 Kinds of Financial Illiteracy
Sucheta Dalal 04 August 2015
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:
  1. 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’. 
  2. 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. 
  3. 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. 
  4. Illiterate Illiterates: This consists of 300 million people who are truly illiterate and are part of the financial inclusion effort of banks. 
  5. 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.
Comments
Ravindra Joshi
1 decade ago
There is another class of Illiterates.

That is: Illiterates who believe they are Literate and liberally dish out financial advice to all and sundry, asked and unasked.
Reply
manoharlalsharma
1 decade ago
money manipulation is the art and understanding it is very difficult one does misconceive and face to ENTIRE industry.what did by UNITECH/DLF but small builder to face.so u only decide this what kind of INVESTORS.
Reply
vswami
1 decade ago
Looking at from an altogether different perspective: So long as 'thrift' ,- especially integrity and honesty, fair -play/means -are continued to be viewed as sworn enemies in the passionate game of moneymaking, remains a forgotten or blatantly ignored concept, or greed, or over greed or overwhelming greed, verging on the trait of 'speculation' is allowed impudently or otherwise to rule the roast (the thinking behind,'risk taking' and its inevitable consequences harming the societal welfare , in its profound / ideal sense have to be taken for granted; not be wished away. On that premise,any such attempt, howsoever meaningful it were otherwise,-
a) to venture and classify fellow humans into literates, literate illiterates or illiterate literates,not only in relation to 'financial' matters,but also any other; or

b)to insulate self from 'loss', -
is, to be blunt,tomfoolery,and self-deceit.

The underlying fallacy / absurdity lies in the insane oversight of the reality that , - anyone's 'gain' necessarily entails, is tagged on, to anyone else's 'loss'. Any scope to deny ?!
Reply
Gopalakrishnan T V
1 decade ago
Admitted all kinds of illiteracies seen in the society? But why and how these are allowed and merrily tolerated? The only reason for prevalence of proliferation of such illiteracies is due to laxity in the Governance standards through out the country and allowing profiteering at any cost ignoring the ethical way of doing business. Who is responsible for this? and why these things happen? Our Administrators, Governance system and tolerance of exploitation by the new genre of marketing by executives who are given targets for profits exploiting all weaknesses seen in the Governance standards. Greed has been allowed to be practised liberally and all are paying for the greed of some who have all possible exit routes. Passing on the blame to end users of the services is easy but where are there any Checks and balances from an effective and efficient administration? It is akin to permitting all to drive all types of vehicles without any need for knowing driving and having any license.
Reply
MOHAN
1 decade ago
Mr. Mundra classifies financial illiterates into five categories only. There is one more category.

Many of these fools are mental patients. They talk about big big things like buying oil rigs in Persian Gulf, buying air crafts/ ships etc etc. Actually they could not even buy a second hand Ambassador car.
Reply
R S Murthy
1 decade ago
I want a simple clarification. Whether the Bank Managements are literate or not?

If literate why NPAs are regularly growing?

Several Banks have lost crores of rupees when EAST WEST AIRLINES was closed.

How the same mistake was repeated with KING FISHER AIRLINES?
Reply
R Balakrishnan
1 decade ago
At the root of every financial scam is a regulator who is asleep at the wheel. Reluctant to take action unless forced in to it, our RBI is a classic 'do not bother me' type of animal. Lax regulations, which the RBI has not bothered about changing, individuals who are afraid to take initiative is the hallmark of our RBI.
It is amusing to hear such 'erudite' renderings from the regulator..
Reply
Nilesh KAMERKAR
1 decade ago
Why do we tend to confuse losses with financial literacy?

Risk of loss is an integral part of all financial dealings. Financial literacy can never insulate us from losses.

Unreasonable expectations from Financial Literacy, makes a already difficult task insurmountable.
Reply
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