It has been 2 months since demonetization was announced. During this period, I have been talking to people from different walks of life to assess the impact of this move. My own support staff had bank accounts but simply did not deposit their salary there for many reasons—why take the trouble to go to the bank, they didn’t know how to use the ATM card and found it easier to have cash to use as required. Now, with their salary being credited to their accounts, they are forced to use their debit cards.
A taxi driver mentioned that he is happy because he can now control expenses and get interest on his savings rather than spending the money on non-essential expenses. Even the local vegetable vendor has acquired a point of sale (PoS) machine and started accepting cards for payment to keep business running though he is not sure of the exact settlement process.
What also came across was the fact that the demonetization move forced all these people to move from being completely cash driven to now using formal banking channels. In all this, there have been many queries that they have had, around usage of these formal channels. There is also a push from the government to adopt digital payment channels and to that extent a great deal of educational material is being rolled out.
Emphasis is currently being given to digital payments literacy but is that enough to financially empower the uninitiated? The masses still borrow for every big need from moneylenders at prohibitive interest rates and this is a vicious cycle. Most do not think about savings.
With the use of formal banking channels for transactions, accounting of income would be streamlined. How can this be used to help the people at the bottom of the pyramid be more financially secure?
While people can be educated on how to use a bank account, the bigger challenge is to educate on how to plan the usage of this money in the bank account in a more effective manner. It’s time to bring a behavioural change towards savings.
These are some areas where financial education is very important:
1) Bank account: how to use an account, a debit card, and other related instruments
2) Maintaining household budgets
3) Planning for emergencies
4) Insurance planning
5) Planning for financial needs such as children’s education and marriage
6) Planning for retirement
How many people in this segment plan for emergencies or retirement? For emergencies, chit fund is often the preferred option, simply because it is easy to invest into and the money is available during an emergency.
No one thinks about saving for retirement, as they hope that their children will take care of them in their old age. The challenge really is to educate the rural and the urban poor on saving regularly, instead of taking loans for every need.
The government should widely propagate the message of the benefits of savings and the channels to save, as increased savings always produce economic and societal benefits. With documented income, access to formal loans at lower rates needs to be worked upon, as this leads to generation of income, which leads to savings.
There are non-government organisations (NGOs) that are running long-term financial planning programmes but given the mass population in this segment, government push and messaging would play an important role in giving an idea to the poor as to the schemes that they can use for their financial needs.
Short videos with educational content sent on mobile phones (given the increasing number of smartphones in the country) would be useful in reaching the message across in a cost-effective and engaging manner.
The government can also look at including financial education, which is such an important life skill, in the vocational skilling programmes being carried out. Given the emphasis and reach of these programmes, at least the youth can get educated on this important subject. This is even more important because youth in this segment are driven by aspirations and tend to spend most of their income on buying fancy smartphones and 2-wheelers, among other things.
There are a couple of other factors that stop the poor from investing despite knowing about the various options.
The ability to put the minimum amount at one go is a limiting factor and hence schemes should be modified to accept nano amounts, like State Bank of India Ltd’s (SBI’s) Tiny account.
Ease of investing is another important consideration for this segment, which is daunted by the thought of going to a bank and filling up forms. Neither are they able to carry out investment transactions on their phones.
Here, the educated class can be the agents of change. Each economically well-off unit (household, micro and small enterprise, and others) can take it upon itself to educate an economically weaker household on the need for saving and investing small amounts regularly into savings schemes like recurring deposits or pension schemes, and also accompany them to the bank to help them with the paperwork and account opening.
Charity begins at home and individuals can be the agents of change for their support staff at home. Educating and implementing what has been learnt can go a long way in helping the economically weaker sections be more financially secure.
Each one teach one. Enable by educating.
Mrin Agarwal, is a financial educator, and founder-director, Finsafe India Pvt. Ltd; and co-founder, Womantra