Where Do Indian Investors Stand When It Comes To Financial Literacy?

Providing an accurate answer to this question is a difficult task. The fact is, we, as a nation, do not have sufficient data that is up to date and has been verified by credible institutions. We know from experience that most investors prioritize their portfolio based on current market trends and vague suggestions from friends, family, or experts on TV. They fail to understand concepts such as interest rates and returns, risk assessment, diversification, and personal needs.

Data is scarce and scary

The last widely accepted survey on financial literacy was done by Standard & Poor's Financial Services LLC in 2015, and it did not paint a rosy picture. According to the study, almost half the participants (49%) did not even understand something as necessary as compound interest, and only 14% of adults could answer questions about risk diversification. Only 26% in the wealthiest 60% and a mere 20% of the poorest 40% population were considered financially literate.

Other surveys conducted before put India's financial literacy rate between 20-35%, which is not surprising.

In 2015, The National Centre for Financial Education, a Not-for-Profit company promoted by RBI, SEBI, IRDAI, and Pension Fund Regulatory and Development Authority, surveyed farmers, the highest contributors to the GDP. The survey showed that only 1.67% of the farmers were aware of crop insurance products and only 0.66% about livestock insurance products.

When we talk about investors, we talk about people; so it would be wise to assume that financial literacy amongst Indian investors falls in the same bracket as the general population; although some groups may fare better while others are far worse.

Where do we lack?

In my experience, there is no shortage of acumen and interest among investors to learn about financial literacy. People are eager to know and expand their knowledge. We fall short in terms of developing robust mechanisms to spread awareness about asking the right questions and choosing the right product.

Be it a farmer, a salaried person, a business owner, or a student, we do not provide the right tools and materials to understand the basics of financial literacy. Which is why investors, rookies and seasoned alike, often fall prey to false promises and invest in the wrong products. They invest because someone else has told them to do so.

What are the solutions?

The first and foremost thing to do is to start short-term programs to create awareness at all levels. Starting from schools and going up to senior citizens, conducting a mandatory workshop on financial literacy would generate immense benefits to all. The National Centre for Financial Education is a great platform that is doing credible work in this regard.

You can find out more at www.ncfe.org.in.

Secondly, conducting yearly surveys with a large sample base to measure the existing problems and areas of improvement accurately is of utmost importance. Robust solutions come only from reliable data.

And lastly, making sure genuine resources are readily available: books, blogs, videos, and personal coaching are great ways to answer the questions related to investment, risk, and goals.

So, what is the answer to the question we asked in the beginning? Indian investors are among the least educated when it comes to finances. The reason is simple; we lack the infrastructure and initiative to make people aware. And the opportunity to change the landscape is immense. The time is now; let's educate ourselves and impart some knowledge to others as well.