Source: Trout Cpa

“The process by which financial consumers/investors improve their understanding of financial products, concepts and risks, and through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being.” (OECD)

Financial literacy include not only trade and investing knowledge, but includes savings, financial planning, banking, and the ability to be “financially smart”. To comprehend financial management, one must be properly be informed and grasp the need of creating budgetary decisions, income administration, and investment strategy in order to achieve financial plans. A well-connected financial system is essential for every country’s economic growth and development. A set of subsystems comprising financial institutions, financial markets, financial instruments, and services that aid capital production make up the financial system. It gives a system for converting savings into investments.

Due to a variety of causes, notably recent technological advancements and media attention, India’s financial literacy percentage across both younger as well as adult population is continuously increasing. Financial literacy seminars, courses, and programmes are being implemented by the Indian administration and other agencies in order to promote progress. The nation has a large amount of digital financial services providers, ranging from mobile banking to digital sales and insurance. As knowledge and ease of insurance and banking rose, India’s financial literacy improved. The proportion of online payments transactions in India expanded significantly: (“1,004 crores in 2016–17 to 5,554 crores in 2020–21”). (Thakur, 2018)

Financial literacy is one of a country’s most valuable assets since it is directly linked to economic progress. The following are the benefits of financial literacy in India. Financial literacy may be used to reach out to rural communities and contribute towards its development. According to an RBI research, 43.8 percent of the people got a loan through unofficial suppliers and paid excessive interest rates. Ease of conducting business: The Pradhan Mantri Jan Dhan Yojana has resulted in the creation of 290 million fresh bank accounts. These accounts have made doing business easier and have helped to encourage digital payment transactions to a large extent. (Hridhya & Reddy, 2020)

Literature Review

In India, Poor financial literacy is a fundamental roadblock to financial inclusion, and this would hinder the country’s economic progress. It urged that additional money be invested in conducting workshops and seminars in institutions, universities, companies, and dwelling regions to enhance financial literacy. Local activities on the importance of investing prospects should be held at various schools, universities, offices, and other locations to develop practical understanding of money in everyday life. (Anshika & Singla, 2017)

Research was conducted on the activities of major regulatory agencies in fostering financial literacy. It emphasized the relevance of numerous financial literacy programmes being implemented around the country in helping individuals become financially educated. Recommendations were given with regards to Policymakers for recognizing the rising demand for financial literacy and establishing appropriate financial literacy programmes. (Kumari & Viz, 2007)

The impact of demographic characteristics such as gender and education level on financial awareness was assessed. They wanted to see if possessing a commerce degree enhances financial knowledge amongst university students, so they conducted a poll of 148 students. The amount of education as well as practice had a good influence on financial literacy, according to the findings. (Aggarwal & Gupta, 2014)

Taylor discovered several factors that determine the extent of financial literacy in research conducted. “He discovered that factors including age, wellness, household size and structure, home occupancy, and individual and family members’ work status were major drivers of financial literacy using panel data models using data from a generic household survey. He discovered that older men and women who worked full-time with a partner who was working had the strongest financial capabilities.” (Taylor, 2010)

Financially illiterate families are less inclined to save for retirement, borrow at larger interest levels, amass less holdings, and engage less within any mainstream banking scheme. People with higher levels of financial education are generally able to earn more off the assets and participate in a broader choice of financial products. As per the study, higher levels of financial education are associated with more successful financial planning. Educated customers will purchase proper, cost — effective, and more relevant offerings. It will lead to more efficient financial markets and increased regulatory oversight. (Lusardi and Mitchell, 2007)

Existing Policies on Financial Literacy

1. Policy Initiatives taken by the Central Bank

The Reserve Bank of India (RBI), India ‘s earliest and also most competent financial regulatory organization, is promoting financial education actively. Commercial banks, non-governmental organizations (NGOs), and self-help groups (SHGs) have partnered with Central Bank and the gov’t to promote financial literacy among the general public (Kamboj, 2014). The Reserve Bank of India has launched a “Project Financial Literacy” initiative. The goal of the initiative is to provide knowledge regarding the reserve bank and basic financial principles to a variety of audiences, particularly high school as well as university students. A multi-pronged strategy is planned for the project.

The initiative was implemented in 2 components, one concentrating on the economic system, the Central bank, and its functions, another on basic finance. The content is written in English as well as various regional languages. It is distributed to the target public via seminars, booklets, posters, the official webpage, and other volunteer organizations. (Das, n.d.)

2. Policy Initiatives taken by SEBI

The Securities Exchange Board of India (SEBI) launched a national project to provide financial inclusion to different targeted divisions, including school students, university students, operating officials, middle-income communities, housewives, former employees, self-help groups, and so on. SEBI has appointed Resource Persons across the country. The Resource Professionals receive mentoring in many facets of finances and thus are prepared with financial sector expertise. The SEBI Authorized Coordinators provide sessions for these target groups on a variety of topics such as savings, investment, financial planning, banking, insurance, and retirement planning. And over 3700 awareness programs have previously been held in different regions, with a total attendance of approximately 2,60,000 people. (SEBI, 2020)

3. Policy Initiative Taken by IRDA

The Insurance Regulatory and Development Authority has also launched a variety of financial awareness projects. Under the National Strategy for Financial Education, frequent concerted efforts are being performed to inform policyholders on their rights and responsibilities, as well as the mechanisms accessible for conflict and grievances settlement (NSFE). Such instructions have been widely communicated across the nation in several Indian dialects using various modes of information exchange such as tv, radio, and newspapers. It has further gotten involved in the “JAGO GRAHAK JAGO” customer education campaign run by the “Ministry of Consumer Affairs, Food and Public Distribution” of the Indian government. (IRDA, 2013)

4. Policy Initiatives taken by NCFE

To improve financial literacy and financial inclusion in India, the National Centre for Financial Education (NCFE) has been founded with the help of a cluster of financial sector authorities (RBI, SEBI, IRDA). Annually, it administers the National Financial Literacy Assessment Test. This test aids pupils in gaining financial information while still in school. The National Council on Financial Education (NCFE) established the FETP (Financial Education Training Program) to provide impartial financial education to individuals and organizations in order to improve financial education in the nation. (NCFE, n.d.)

Challenges of Policies

The problem involves data overload and resource saturation. With so much unprocessed data on people’s system, it’s difficult, certainly perhaps unattainable, to separate the information from the noise. People looking for knowledge encounter three issues: an absence of framework, an absence of legitimacy, and an absence of guidance, to name a few. Data on the internet is frequently delivered in a segmented arrangement. The brain has to be maintained in a very regular manner in order to retain information. Since there is little context to connect unorganized information together into a meaningful whole, they are forgotten quickly.

Deficiency of reliability is indeed a significant issue. Individuals prefer to learn through professionals that have knowledge and expertise in the area they’re interested in. On the website, however, anybody may remark on any subject, and it’s difficult to know if the credential displayed are genuine. Whenever we consider how individuals learnt things in the past, it’s easy to see how a lack of guidance may be an issue. Books might be hard and bulky to transport, although they do have one distinct advantage: directed education.

Within India, there is a lot of variation between states. A nationwide comprehensive information series with an indicator of financial education covering financial skills, behavior, and mindset revealed a difference among the top and lower financial literacy Indian states. “Gender, qualification, location (rural, urban, urban, or metro), occupation, technological savvy, and current debt were all shown to be connected to disparities in financial management fundamentals, according to statistical research.”


According to this assessment, the RBI, SEBI, and IRDA have been consistently pursuing creative initiatives to improve India’s level of literacy. Given these great measures, India’s financial literacy is quite poor. This poor literacy rate is a big impediment to India becoming a cashless and technological market. This obstructs the route to financial inclusion as well. Financial education programmes must be tailored to the specific community, taking into account differences in language, culture, income levels, and other factors such as younger pupils, urban or rural residents, and so on.


Financial literacy is a critical aspect of every economy. Improvements in financial education would lead to greater financial inclusion, that will strengthen the nation’s financial stability. All of India’s major governing authorities have made laudable efforts to promote financial education in the nation. Despite our best efforts, the level of financial literacy among our country’s citizens is not very high. Add fundamental financial education ideas to the curriculum because a kid may learn the concepts at an early age. Advanced financial education topics may be incorporated into the higher education system to provide learners with in-depth understanding of financial instruments which will aid in the development of competent and practical financial management. Supervisory organizations can have their initiatives verified on a regular basis. Governments may implement creative financial literacy and financial inclusion policies in response to changing economic needs, resulting in a more balanced economy in the nation.


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