Banking and financial literacy

By M.M. Goel

To survive and sustain any economic/financial crisis in all times to come, there is a strong case for banking and financial literacy of everyone in the world including Korea and India. Let the people be sensitized on the “ABC” of banking and finance on the occasion of International literacy day on Sept. 08.

“A” stands for account in a bank which can give natural death to black money in the parallel economy anywhere in the world. “B” should be remembered for bank which means the trust people have for financial institutions (banks) which should not be allowed to be eroded by anyone, anywhere in the world. “C” stands for customers who need credit on the lowest interest rate. “D” must be remembered for demand draft which can be crossed to be deposited in the account. “E”-banking is capable of reducing the irresponsible behavior of the bankers. “Fixed” deposits for a long time call for higher rates of interest.

“G” stands for guarantee which is like a girlfriend who, if you don’t like them, can be replaced to establish credibility as a good customer of a bank. “H” represents honesty for one and all to adopt with the purpose of becoming a civic society without black money and so on and so forth.

We need to learn the importance of saving and investment which calls for reducing the propensity to consume which should be confined to needs only.

Banking and financial literacy has never been on the priority list for most of the countries. In the U.S., for example, the Securities Exchange Commission has only this year started its survey of the state of financial literacy in the country. That effort was mandated under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

There are 600 million people in India who lack a bank account. We must bring them into the mainstream. We cannot have equitable growth without financial inclusion. Inclusive banking has moved to the top of the agenda. But patronizing a financial institution doesn't mean that people escape the attention of moneylenders and other unscrupulous elements. To avoid them, and the dangers they bring, we require banking and financial literacy.

Various studies and surveys show that financial education has become increasingly important all over the world. According to a global survey by credit card company Visa, the average person in the U.S. has only 2.9 months of expenses saved. Less than 50 percent have the discipline of a household budget. The U.S. is 4th globally in overall financial literacy. India was 23rd out of the 28 markets surveyed. India also ranked near the bottom when it came to talking to children about managing money.

One of the top distribution channels for financial education can be the classroom at any level of education. People should be educated on banking and financial matters as early as possible in their lives. Financial education should start at the schools which are the best target. The most vulnerable are the young and the old ― the old because they have declining cognitive abilities and the young because they have very little financial market experience. Educating children about financial matters will have long-term consequences. When they grow older, they will make better decisions. They will also help their parents and grandparents make better decisions.

It would be better if the scheme of banking and financial literacy is randomly introduced in some schools and then study the true impact of the scheme on students' ability to make better financial decisions.

There is a place under the sun for all of us to cover schoolchildren who need to learn their financial ABCs. All of us should contribute to the efforts by cooperation and coordination at all levels of education.

ATMs (Automatic Teller Machines) and Internet banking do serve customers but need banking, financial and computer literacy which are a challenge for every economy like India. Let us convert it into an opportunity to exist and excel in the present economic scenario. We need accountability, transparency and morality to constitute real ATMs in every bank which means trust has to be created and maintained. This justifies banking and financial literacy for everyone.

The writer is professor of economics and dean of Faculty of Social Sciences in Kurukshetra University, India. His email address is mmgoel2001@yahoo.co.in.