The nation’s central bank is steering financial institutions to create accounts and products that are more accessible and introduce them in an orderly way—and include lots of hand holding.
For example, first you open a bank account, then you learn how to save, and then you learn how and where to invest. This step-by-step approach is the core of a national strategy for a developing nation that lags badly in financial literacy.
Three quarters of Indian adults do not understand key financial concepts, according to a global survey conducted by Standard & Poor’s Financial Services. That is a worse-than-average reading on par with nations like Brazil, Russia, rural China and South Africa.
In India, only 39% of adults with a formal loan are financially literate.
Nearly half do not have a bank account, and 80% of those without a bank account have poor financial skills.
The formal plan from regulators led by the Reserve Bank of India will be unveiled in coming weeks, according to the Indian newspaper Business Standard. Under the plan, financial institutions will be directed to customize products to suit individuals’ needs and share these products with other banks and coordinate their unveiling.
“Once an account is opened, there should be some transaction,” Reserve Bank of India Deputy Governor S.S. Mundra told the Business Standard. “Then the person should be given some productive credit. Once credit is given and she can generate surplus, that surplus should be used to buy some micro-insurance, and save some money for a rainy day or for old age. In those stages, pensions and investment products would be introduced.”
This kind of coordination is not practical in countries like the U.S., where regulators can lead and suggest but would never try to compel banks to work together in this manner. Yet the approach has merit in that it essentially embraces the kind of just-in-time financial education that experts believe gets results.
A good time to teach someone about money is when they are about to make a financial decision.
It has immediacy and consequences and is most likely to be taken seriously. Just in time is not a replacement for school-based financial education. Rather, it should be seen as critical reinforcement.
India has got serious about financial literacy in recent years. Its poor showing in global rankings is stirring action. The nation is embracing mobile technology as an inclusion tool. One sign of success: 280 million new bank accounts have been opened in India in just the past few years. In one record-setting week, 18 million new accounts were opened.
Financial literacy is a popular cause throughout the nation, which is home to 17.5% of the world’s population. Right About Money posts on India’s financial education programs are among the most read outside the U.S. The nation seems to understand that financial literacy is an important part of economic growth and prosperity for all.