Whether we like it or not, our lives are deeply entangled with debits and credits, in which money plays the role of a common thread. Debit for one person is credit for another, which again is a debit for someone else and credit for yet another person. The entire system seems to be perpetually interlinked. A problem at one point in the chain could easily spread to another part and, thus, affect every link in the chain. For the common good, it is necessary for all of us to know how our monetary ecosystem works, and here comes the need for financial literacy.
Johnny: It seems that the challenge we face in understanding the world of money comes not from outside but from within our own complicated systems. What role could financial literacy play in making our life simpler?
Jinny: It seems that money and simplicity do not go together. Anything in any manner connected with money starts looking complicated. While financial literacy on its own can’t bring simplicity to otherwise complicated systems, it can surely prepare us to deal better with hidden surprises. The best way to take care of any confusing path is to get hold of a simple road map that can help you decide where you want to go. That’s the reason why different countries of the world are now taking financial literacy more seriously. It is our best reply to the ever-increasing complexity surrounding money.
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Johnny: It’s good that we already know where the problem lies. But tell me, what do we exactly mean when we talk about promoting financial literacy? Aren’t we already overburdened with too many know-all campaigns?
Jinny: Well, financial literacy is not just about providing bits and pieces of knowledge. One of the key ingredients of spreading financial literacy is that the knowledge imparted must be truly unbiased, fair and simple, and I feel that there is really a dearth of campaigns based on these criteria.
The good news is that both developed and developing countries are taking up new initiatives. In the coming days we might see the convergence of best practices across countries. In this respect, various multilateral agencies could play an important role. The Organisation for Economic Co-operation and Development (OECD), a Paris-based group of 30 developed countries, has already been very active in promoting international best practices among different countries. It recommends that the focus of financial literacy initiatives should be particularly on important life-planning aspects such as basic savings, debt, insurance or pensions.
Johnny: I am sure there is no dearth of suggestions and recommendations. Are there any views on what the right age group to which we specifically target financial literacy should be?
Jinny: In my view, anybody in any manner connected with money needs financial literacy. We can no longer say that financial literacy brings prosperity just for a particular individual. In fact, the benefits of financial prudence on the part of one individual percolate down to the entire society. So, financial literacy is now more of a social necessity and as such its focus needs to be wide. But within this wider focus, we need to make a more determined effort at reaching out to schoolchildren.
The current international opinion seems to be in favour of making financial literacy a part of the school curriculum. Though some may like to argue that teaching children about Amazonian rainforests is easier than teaching them about a bank situated in their neighbourhood, there can’t be any doubt that children could reap more tangible benefits by knowing about their neighbourhood bank.
Illustration: Jayachandran / Mint
A child obviously has some advantage over a grown-up. The first advantage is his or her curious mind, which is willing to go deeper into every mystery and money, of course, seems like the mother of all mysteries. The second advantage is that children have their entire life before them. The sooner they start, the longer they can use the knowledge to their advantage.
Johnny: Advantage, advantage everywhere. But now the time has come to ask my final question. Who should take up the task of spreading financial literacy?
Jinny: I know you have been waiting to ask your final question, but I feel sorry to say that I don’t exactly know the answer. But, in my view, it can’t become the job of one or two individuals. We need institutions committed to financial literacy as their goal. Some countries such as the US and Australia have established a central nodal agency for spreading financial literacy. In some countries, regulatory agencies are taking up the responsibility. In India, both the Reserve Bank of India and the Securities and Exchange Board of India have started different initiatives. Even banks and stock exchanges are showing greater interest. However, all this work requires better coordination at some level, so that we can make the best use of our limited resources.
Johnny: It’s good to see big forces at work here; otherwise, with the increasing complexity surrounding money, we would have to just live like dinosaurs with the constant fear of the unknown. Anyway, thanks, Jinny, for keeping my brain cells active for the last three years. I hope to see you some other time at some other place in a different avatar. Bye for now.
This is the last column by Shailaja and Manoj K. Singh, who have important day jobs with an important bank. You can write to them at firstname.lastname@example.org