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Money matters

Financial literacy needs a harder push in India

The finance ministry has released data on the progress made this year on financial inclusion. The numbers are impressive. There is also a new study by credit rating agency Standard and Poor’s that says three out of every four Indians are not financially literate. Most people in the country do not seem to understand basic concepts such as compound interest or financial diversification.

The two issues are interlinked. Greater access to finance works best when people are financially literate. Otherwise they have to deal with challenges ranging from bad decisions to downright fraud. Even middle-class borrowers have only a vague idea about the real cost of their housing loans.

Of course, these are not problems unique to India. Some even say the human brain is not hardwired to deal with risk measurement.

Financial literacy needs a harder push in India. Till then, there is a case for some combination of simpler financial products and greater financial transparency so that national savings are optimized.

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