Why opening a bank account does not mean you are financial literate
Ideal financial societies provide safe and convenient ways of managing simple monetary affairs. Financial inclusion is the philosophy of providing affordable, safe, accessible, and properly regulated financial tools to the people. These tools enable saving and responsible borrowing and allow people to build their assets while improving their livelihoods. The most discussed are ‘the unbanked’—usually defined as those who do not have a traditional savings account. They need to be brought within the ambit of formal finance.
 
But for making successful use of these services, people need to be literate enough to understand the basics of managing money. They need skills like basic numeracy and literacy, budgeting, investing, mechanics of interest rates, and risk diversification. It is a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and achieve individual financial wellbeing. Functional proficiency in core money skills and their subtle nuances is crucial if they are to successfully manage their future money needs. This is the single biggest skill that can ensure economic wellbeing and freedom. In modern parlance it is known as financial literacy. Financial literacy is expected to impart the means to transform ordinary individuals into informed and questioning users of financial services.
 
Financial services are like clean water and electricity in their necessity for progress. Yet, opening a bank account does not ensure that the account is used. Two-thirds of the world’s 299 million mobile money accounts are dormant. A lack of comfort with technology or low literacy may discourage use. Products are also not always designed with the unique needs of poor users in mind. Merely opening physical accounts as flag posts for a financial identity will not help unless they are actively used by people for managing their money. For this, people need to be made cognizant of how to handle their bank accounts.
 
People who have a strong grasp of financial principles are able to better to understand and negotiate the financial landscape and avoid financial pitfalls. Conversely, people with a lower degree of financial literacy struggle to understand money matters and the potential impact on their financial well-being. Financial ignorance carries significant costs and results in people spending more on transaction fees, getting overextended with debts on account of them being ripe prospects for predatory practices. On account of lack of proper awareness and failure of institutions to properly guide them, people buy insurance policies without planning and give up midway because they do not have money to pay the premium. Aggressive selling prevents the agents from properly assessing the consistency in income streams of the buyers for servicing their policies. The customers end up losing heavily due to harsh penalties.
 
To blunt the potential for risk, it is more important than ever to arm customers, especially the newly banked, with skills they need to borrow, save and move money prudently and to keep   distance from unscrupulous and dubious investment schemes that are likely get them into serious trouble.
 
Financial education programmes focused on just imparting knowledge will never yield the desired results unless backed by a suitable product and its usage support. Cognitive constraints rather than lack of attention are a key barrier to improving financial knowledge. Areas in which a service provider was involved in the programmes observed a better understanding and product usage, as claimed by a recent United Nations Development Programme (UNDP) report on financial literacy programmes in India. It gave consumers a better handle on some of the financial intricacies and enhanced their prospects for a stronger financial foundation. These hands on interventions significantly improve basic awareness of financial choices and attitudes toward financial decisions.
 
Using a model that involves experiential learning and product usage has a greater chance of being successful. This can evidently be seen in one model, where a bank undertook a project to deliver financial education training to young women in rural communities. This was accomplished by a cascade training model where core trainers trained peer educators, who in turn trained community members.
 
Financial services can be fully utilised if the low-income people get the products well suited to their needs along with appropriate training and education for adapting to these financial services. Attention must be paid to human and institutional issues, such as quality of access, affordability of products, familiarity and comfort in use, sustainability for the provider of these services, proper training and outreach to the most excluded populations to achieve efficiency. Financial knowledge is particularly important in times where increasingly complex financial products are easily available to a wide range of the population. To keep abreast   even those who are financially literate need to brush up on financial skills. 
 
Many clients are not satisfied with the transaction fees associated with the bank accounts. According to their calculation, they may lose more by paying transaction fees than they would recoup in interest earned on their deposits in a year. In such cases, the customers have to be made aware of the safety of their savings and of the protection offered by the government in case the bank undergoes liquidation.
 
The father of behavioural economics Richard Thaler has generated enthusiasm about his nudge theory when he won the Nobel Prize. Unlike normal economic theories that assume that all participants can take rational decisions, behavioural economics says that as mere human beings, we are prone to irrational actions and therefore, need to be “nudged” in the right direction. The same is true with finance. Poor people, who have a bank account, are more likely to be financially literate than those who do not have a bank account, as there is a direct correlation between financial knowledge and financial services .While higher financial literacy leads to broader financial inclusion, operating an account or using credit may also deepen consumers’ financial skills .
 
Challenges in the supply-side are a key reason for the financial exclusion of low- and moderate-income (LMI) communities. These people need products well suited to their needs and appropriate training and education for adapting to these financial services  lives  This calls attention to human and institutional issues–such as quality of access, affordability of products, sustainability for the provider of these services and outreach to the most excluded populations.  
 
But we have to go beyond mere physical accounts if we want to catalyse financial inclusion into broader economic and social growth. We need access to design and develop basket of financial services. A one-time incentive for opening the account is not enough to ensure that they continue to save and use the account.
 
The new revolution for financial inclusion will have better chances of success if it is driven less by financial punditry and more by empathetic governance. People take to new technology when they see clear benefits, have greater confidence in the services, find it convenient and can afford it. The consumers come into the formal financial sector in the hope that certain pains will be assuaged. Every client is unique and   women, in particular, may prefer more focus on savings rather than credit. In traditional societies too, no matter how oppressed women are or the level of their literacy, they are often the stewards of family savings. Thus, we have to address these real pains and not simply offer benefits.
 
(Moin Qazi holds PhDs in Economics and English. He has been associated with the development sector for almost four decades. He can be reached at [email protected])
Like this story? Get our top stories by email.

User

COMMENTS

SUBHASH CHATTERJEE

4 months ago

Totally agree with what has been mentioned by Shri Qazi. Let's make a petition to the Finance Ministry and the PMO .

Include cyber crimes in charter of committee on phone frauds: Report
The government should include cyber crimes in the charter of the Inter-Ministerial Committee on Phone Frauds (IMCPF18) as there is no significant difference between phones and computers with growing use of smart phones, a joint report by Ficci and EY said on Wednesday.
 
The report, "Confronting the New-Age Cybercriminal: Disrupting the web of crime", said: "An Inter-Ministerial Committee on Phone Frauds (IMCPF18) has been constituted in the Ministry of Home Affairs. This Committee needs to be mandated to include cyber crimes also as part of its charter because the distinction between phones and computers has virtually disappeared with the proliferation of smart phones."
 
The committee comprises representatives of the Home and Electronic and Information Technology Ministeries, Departments of Financial Services and Telecommunications, the Reserve Bank of India and law enforcement agencies.
 
The report also calls for strong bilateral agreements on cyber crime investigations, information sharing, intelligence, the applicability of international and territorial laws, capacity building, research and development among others.
 
It further advocates strengthening the national core networks and systems with establishment and enhancement of institutions or bodies such as Cybersecurity Incidence Response Team, Security Operations Centre.
 
Addressing the Ficci's conference on Homeland Security-2018 where its report was released, Minister of State for Electronics and IT S.S. Ahluwalia urged self-regulation and exercise of utmost care in uploading and downloading information from the internet as any indiscretion would lead to involuntarily aiding the cyber criminals in their malicious intent. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

Like this story? Get our top stories by email.

User

COMMENTS

Mahesh S Bhatt

4 months ago

There is no TRAI/GoI/MoD guidelines as per ITU T for Indian Private Sector Telecom Networks Audit & Business audit also is partial today.

Maran's case of creating a Private Exchange in his home is aquitted but this is tip of iceberg.Telco spend very minimal for Security of Networks & Hackers of State Infrastructures are at war always.

Recently a major State Online ticketing services was under attack from Russia & not reported as it was Business related but State Security is more vulnerable with High Speed wireless networks of Voice/Video & Data .

Mahesh Bhatt

TRAI notifies draft norms to curb pesky calls, texts
The Indian telecom regulator on Tuesday notified the draft regulations to curb pesky calls and text messages by using blockchain technology, an official statement said here.
 
The Telecom Regulatory Authority of India (TRAI) said "unsolicited commercial communication, or spam, is a major nuisance to telecom subscribers", and to curb the menace, TRAI established a "Do Not Disturb" (DND) registry under regulations made in 2010.
 
It said 23 crore subscribers have registered themselves on the DND registry since then. "But the problem was not fully contained because unscrupulous elements started obtaining customers' consent, often surreptitiously, or resorted to use of unregistered telemarketers that call or message from a 10-digit number. In more recent times, the incidence of fraud calls has also been on the rise."
 
The new features of the regulation are adoption of Distributed Ledger Technology (or blockchain) as the RegTech to enforce regulatory compliance while allowing innovation in the market. 
 
"Blockchain has proven useful where the objective is to cryptographically secure information and make it available only on need to know basis. Yet none may deny their actions or tamper with records, once recorded on the distributed ledger, which uniformly enforces compliance," the TRAI statement said.
 
The new norms will co-regulate where Telecom Service Providers/Access Providers establish and arrange framework, which is legally backed by regulation.
 
"Since the telcos can be expected to guard the interests of their subscribers, TRAI has opted for co-regulation to develop the solutions that can better serve the needs of all stakeholders. This would, of course, be allowed only within the framework prescribed in the regulations," the statement said.
 
The new rule will enable compliance through innovation in technology solution that are demonstrated in a regulatory sandbox.
 
It will also provide for better control over all entities in the ecosystem and in the flow of commercial communications, beside detecting unregistered telemarketers through collaboration.
 
The draft regulation issued today shall be open for comments up to June 11, 2018.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

online financial advisory
Pathbreakers
Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
online financia advisory
The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Online Magazine
Fiercely independent and pro-consumer information on personal finance
financial magazines online
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
financial magazines in india
MAS: Complete Online Financial Advisory
(Includes Moneylife Online Magazine)