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(Precious) Words of Wisdom : "Wall Street makes its money on ACTIVITY, you make your money on INACTIVITY." ~ Warren Buffett

Which type of Financial Illiterate are you?

Financial inclusion is the buzzword. Vast "unbanked" population has to be brought under the formal financial sector.

And closely associated to financial inclusion, is their financial literacy. Various Govt. / private organizations such as RBI, SEBI, AMFI, IRDA, etc. are all individually involved in spreading financial awareness.

One such endeavour was the Conference on Financial Literacy, organised recently by the College of Agricultural Banking.

The keynote address was delivered by Shri S. S. Mundra, Deputy Governor, Reserve Bank of India. In his opinion, "the 'trinity' of 'financial inclusion', 'financial literacy' and 'consumer protection' put together, have a vital bearing on the stability of the financial system".

In this context, he made a very interesting categorization... about five types of Financial Illiterates.

1. Wise Illiterates
As I have often mentioned, scams and frauds are not restricted to just the uneducated or poor. No. The rich and educated class too, including corporates, repeatedly becomes a victim of cheating. And this is precisely what Shri Mundra also refers to. The wise illiterates are extremely knowledgeable and have access to immense resources. They are fully aware of the risks involved in various financial transactions. Yet, despite this wisdom, they are not immune to financial scams... and hence the term 'wise illiterates'.

2. Greed-driven Illiterates
People who are well educated, well aware and very well understand the implications of any financial decision — but are driven by pure greed to make quick money — fall under this category. You often come across instances of the rich and financially savvy professionals, doctors, post-graduates, lawyers, etc., who have 'willingly' transferred lakhs of rupees to dubious people with all kinds of shady schemes and offers. They definitely don't lack financial awareness. Yet, they are taken for a ride, as the greed in them overpowers their common sense.

Financial-service Providers and their Consumers must work in co-operation.
3. Information-deprived Illiterates
With the economic growth and urbanization, has come the rapid growth of middle class and accordingly its financial needs. Thus, we now have banks, insurance companies, mutual funds and various other financial companies offering more and more financial products... with more and more variety and sophistication. While the providers of such services have turned financially savvy, the consumers or the recipients of these services are still naive in such matters. Therefore, though they are formally well educated, they don't possess the requisite level of financial information... and hence remain information-deprived illiterates.

Another important group in this category is the housewife. Though otherwise literate, she have so far played little role in the financial decision-making, which primarily the husband manages. However, housewives can play a crucial role in educating and influencing other household members, including children. Hence, they too must receive financial education. [Remember my article 'Housewives too can become Millionaires'].

4. Illiterate Illiterates
Around 30 crore new people have entered the formal financial / banking sector for the first time ever, in the last few years. This is on account of sustained efforts by the previous and current Govt. They primarily belong to small towns and villages as also the unorganized sector in the cities. They are not yet educated even in the formal sense. So, naturally, they lag behind even in the financial education.

5. Kindergarten Illiterates
Shri Mundra is of the opinion, and rightly so, that even the young students who are still in school and college should receive appropriate financial knowledge and awareness. Even though they are yet to become part of the formal world of finance, these kindergarten illiterates form an important target group. In fact, like good etiquette, financial habits too need to be inculcated from childhood. You can't suddenly expect people to become financially prudent in their 20s or 30s.

Thereafter, Shri Mundra explained how the financial literacy drive should address the unique needs of each of these groups, more particularly the last three... the ‘wise illiterate’ and ‘greed driven illiterate’ don't need any financial inputs. Rather, they need to "curb their instinct and impulse for making quick money".

The win-win situation would be, when the consumers are serviced honestly by the providers. Only when consumers prosper, they develop the confidence to provide more business to the providers. As the demand for such products increase, it enhances their profitability and earnings, thus becoming a virtuous cycle. Unfortunately, however, across the world the providers have often targeted short term profitability through dubious means. People, therefore, are reluctant to trust them.

Concluding his talk, Shri Mundra made a mention of “National Strategy for Financial Literacy-Count me in, Canada”. This strategy clearly lays down three primary objectives for the people, namely
i.   manage money and debt wisely
ii.  plan and save for the future
iii. prevent and protect against fraud and financial abuse

Shri Mundra believes that India too needs a similar focused approach towards spreading financial literacy among the masses.

So where among these 'Financial Illiterates' do 'you' figure? 

I sincerely hope, NONE. I would love to see you all as Financially Literate.

An Investment In Knowledge Pays The Best Interest ~ Benjamin Franklin

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