Why Financial Literacy Matters And Tejasvi Surya's Suggestion To Include It In School, College Education System Needs To Be Acted Upon

Tejasvi Surya, the BJP parliamentarian from Bengaluru South, has urged the Centre to consider making financial literacy a part of the school and college education system, saying a large number of young Indians are not equipped with “money management skills”.

During his intervention during Zero Hour on Thursday, Surya raised the topic of low financial literacy among India’s youth. He highlighted that lakhs of young Indians are entering the job market but lack an understanding of money management. He asked the education ministry to consider including courses on finance as a part of the formal school and college education.

Surya highlighted that financially literate citizens would not fall prey to get-rich-quick schemes, dubious banks, and debt traps.

In India, the current education system ensures that schoolchildren have little exposure to financial concepts. What little is taught is usually related to simple or compound interest and involves rote-learning mathematical formulas to solve theoretical problems rather than the practical aspects of saving and investing money.

After tenth grade, only a part of the youth that selects the commerce stream gets exposure to relatively more practical aspects of finance. Yet, even these students need to get a practical understanding of handling their personal finances. It is no wonder that many well-educated adults view money management as an intimidating and complex activity.

The effects of a lack of financial literacy were in full display during the bull run in all financial markets. Youngsters put their money into unsafe crypto investments, hot stocks based on tips, NFTs, and other “assets” that were anything but.

The bear market in the crypto and certain pockets of the stock markets have forced many youngsters to reconsider their personal finance decisions. Had they been financially literate, they perhaps would have thought more rationally rather than allowing the fear of missing out to drive their decisions.

The emotional and financial loss could have been avoided or reduced if they had a solid understanding of the basics of finance.

The Role Of 'Finfluencers'

A lack of financial literacy can prevent people from relying on unsuitable third parties for financial advice. Since schools do not offer much in terms of financial literacy, the gap in the market has been filled by “finance influencers” who offer financial advice to their followers and viewers.

Finance influencers have brought basic financial advice to the masses through social media, often simplifying concepts so that people from all backgrounds can understand them well. But, there always are bad agents who would like to enrich themselves at the cost of their clients. There have been several occasions where extremely popular influencers have endorsed shady companies and brands.

For instance, several influencers had endorsed a “Crypto Fixed Deposit” that offered a guaranteed 12 per cent return. Anyone with a basic idea of finance would have been suspicious about the reasons a company could borrow at 12 per cent if the opportunity was truly risk-free. Borrowing at almost double the risk-free interest rate was a sign that the opportunity was not truly risk-free. The company later had liquidity problems and suspended customer withdrawals. There are countless examples of people falling prey to such too-good-to-be-true schemes.

Another profession that the information gap in the personal finance space has bred is financial advisors. Yet, even those who can afford to consult a financial advisor need to have the fundamental financial expertise to distinguish between a good advisor and a mischievous one.

Clients are often pushed into products that bring higher commissions for the advisors rather than the best ones. For instance, convincing clients to buy underperforming, actively managed funds rather than passive funds that suit their needs is a clear sign of putting one’s self-interest over their fiduciary duty.

Clearly, no matter the route one takes, managing one’s personal finances ultimately requires some degree of skill. Today, there is a growing interest in personal finance in India.

The number of Demat accounts has increased from 3 crores in 2018 to 10 crores in 2022. India has eight crore taxpayers, indicating that a majority of people who can afford to invest in financial markets have probably already begun to.

As more people join the workforce, these numbers are likely to rise. However, in order to make sound financial decisions, people must have a solid grounding in finance.

While learning in the school of hard knocks is important, the basics of personal finance should be taught in actual schools, irrespective of the stream one takes. It must be done in a manner that excites children rather than making them feel that it is another boring subject that they must rote-learn to pass exams. That would negate the entire point of including the subject in the curriculum.