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Financial Literacy: Challenges for Indian Economy

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Financial System Plays An Important Role In The Growth And Development Of A Nation. The Growing Complexity Of Financial Products Over The Past Decade, Coupled With Financial Innovations, Has Put Enormous Pressure And Responsibilities On Shoulders Of Financial Investors. Financial Services Are Becoming Freely Accessible, But, Increasingly Complex Financial Services Market Offers The Consumers Myriad Of Products With Intricate Features And Services, Which Leave Many People Ill Equipped To Cope Up With The Sophisticated Financial Needs. The Economies Around The World Have Increasingly Considered Financial Literacy As A Key Pillar For The Development Of Financial System Of A Country. As Financial Markets Become More Sophisticated And Households Assume A Growing Share Of The Responsibility And Risk For Financial Decisions, Financial Education Is Necessary To Ensure Sufficient Levels Of Investors And Consumer Protection As Wells As The Smooth Functioning Of The Financial Markets.
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  Financial Literacy: Challenges for IndianEconomy Dr. Anjali Sane Abstract  Financial System Plays An Important Role In The Growth And  Development Of A Nation. The Growing Complexity Of Financial  Products Over The Past Decade, Coupled With Financial Innovations, Has Put Enormous Pressure And Responsibilities On Shoulders Of  Financial Investors. Financial Services Are Becoming Freely Accessible, But, Increasingly Complex Financial Services Market Offers The Consumers Myriad Of Products With Intricate Features And Services, Which Leave Many People Ill Equipped To Cope UpWith The Sophisticated Financial Needs. The Economies Around TheWorld Have Increasingly Considered Financial Literacy As A Key Pillar For The Development Of Financial System Of A Country. As Financial Markets Become More Sophisticated And Households Assume A Growing Share Of The Responsibility And Risk For  Financial Decisions, Financial Education Is Necessary To EnsureSufficient Levels Of Investors And Consumer Protection As Wells AsThe Smooth Functioning Of The Financial Markets. Creating  Financial Literacy Can Play A Critical Role In Equipping The Journal of Commerce & Management ThoughtVol. 5-3, 2014, pp.475-487DOI : 10.5958/0976-478X.2014.00335.8 475  Consumers With The Information, Fundamental Knowledge, And Skills To Evaluate Their Options And Enables Them To Understand The Implications Of Alternative Financial Decisions. Through This Paper, Author Would Explain Importance Of Financial Literacy And Challenges Faced By The Indian Economy In Inculcating Financial  Literacy. Keywords: Financial Literacy, Organization for Economic Co-operationand Development (O.E.C.D), Financial Regulator Introduction Indian Economy Is At Tipping Point. And, The Youth Of This CountryWill Determine The Direction The Economy To Move. As Per The Census Of India – 2011, The Population Under 35 Years Is More Than 41 Percent,Which Is Referred As ‘Demographic Dividend’ On One Hand And Also As‘Demographic Disaster’. So, Is Our Burgeoning Youth A Bane Or Boon? InThe Early 1980s, China Was In A Position That India Finds Itself Today. ButToday, China’s Current Economic Boom Is Said to Be the DirectConsequence of the Large Proportion of Youth in Its Population. ThisPredominance Of Youth In The Population Is Expected To Last Until 2050.While The Average Age Of An Indian In 2020 Is Expected To Be 29 Years,The Average Age For China Would Be 37 Years Thus, With Proper EducationAnd Job Openings, Our Youth Are Sure To Tip The Economy In The RightDirection. This Would Be The Major Working Class Which Will GenerateIncome, Save And Create Demand For Products And Services. As The Youth Population In Indian Economy Is High, It Is Necessary ToCreate Awareness Among Them About The Significance Of FinancialLiteracy. There Are A Number Of Initiatives Taken By The Reserve Bank Of India (RBI) In This Direction. Some Of Them Include A Dynamic WebsiteContaining Updated Information About The Various Schemes Of Banks InSimple Terms With Illustrations, Opening Counseling Centers By PublicSector Banks In All Cities, Conducting Short Term Courses Etc. FinancialLiteracy Is Very Much Desired For All Those Excluded And This Has BeenElaborated In Many Of The Reports Of Reserve Bank Of India.  Journal of Commerce and Management Thought 5 - 3 476  The Paper Examines The Concept And Importance Of FinancialLiteracy, Need For Financial Literacy Among Indians And The ChallengesFaced By Indian Economy In The Current Changing Scenario. Literature Review: While Several Widely Used Definitions Of Financial Literacy Exist, AllOf Them Generally Imply The Ability Of Individuals To Obtain, UnderstandAnd Evaluate Information Required To Make Decisions To Secure Access ToBanking And Insurance As Best As Possible. Noctor, Stoney And Stradling(1992) In Their Study Undertaken On Behalf Of National Westminster Bank In The U.K., Where They Have Introduced, Conceptualized And Defined TheTerm “Financial Literacy” As “The Ability To Make Informed JudgmentsAnd To Take Effective Decisions Regarding The Use And Management Of Money”. Anthes (2004) Stated That “Personal Financial Literacy Is TheAbility To Read, Analyse, Manage And Communicate About The PersonalFinancial Conditions That Affect Material Well Being”. OECD (2005)Defines Financial Education As “The Process By Which FinancialConsumers/Investors Improve Their Understanding Of Financial ProductsAnd Concepts And, Through Information, Instruction And/Or ObjectiveAdvice, Develop The Skills And Confidence To Become More Aware Of Financial Risks And Opportunities, To Make Informed Choices, To KnowWhere To Go For Help, And To Take Other Effective Actions To ImproveTheir Financial Well-Being.”Several Surveys Demonstrate That Lack Of Basic Financial LiteracyOften Results In Poor Financial Decisions. Lusardi And Mitchell (2007a,2007b) And Lusardi And Tufano (2009) Found That Low Levels Of FinancialInformation Resulted Into An Inability To Understand Basic FinancialConcepts And Poor Judgment In Borrowing Decisions And RetirementPlanning And Hence Poor Financial Management. The Poor FinancialDecisions Can Mire Households In Debt And Lead To Much Lower LivingStandards. Cole, Sampson And Zia (2009) Found That There Is A StrongAssociation Between Understanding Financial Concepts, Better Financial  Financial Literacy: Challenges... 477  Decisions, And Household Well-Being. Financial Illiteracy Or Low Level Of Financial Literacy Resulted Into Financial Stress. Bagwell (2002) FoundThat Poor Financial Management Leads To Greater Absenteeism At Work.Hendrix Et Al. (1987) And Jacobson Et Al. (1996) Found That FinancialStress Was One Of The Stressors That Affect Absenteeism. Ullah (1990)Found That Financial Stress Influences Psychological Well-Being And AlsoMediates The Effect Of Income And Mental Health. Drentea And Lavrakas(2000) Found Individuals Who Reported Higher Level Of Financial StressShowed Higher Level Of Physical Impairment And Illness Than Lower LevelOf Financial Stress. RMR (2003) CBF (2004a) Supported That The High Number Of People With Low Levels Of Financial Literacy Presents ASerious Problem For Both The Economic Well-Being Of Nations And ThePersonal Well-Being Of Such Individuals And Their Family.Several Studies Have Also Attempted To Examine The Level Of Financial Literacy In India. Most Of Them Report That The Level Of Financial Literacy In India Is Poor. For Instance, The VISA (2012) StudyRanked India At The 23rd Position Among The 28 Countries Surveyed.Adopting The Questionnaire Developed By The Organisation For EconomicCo-Operation And Development (OECD) To Facilitate InternationalBenchmarking, This Study Attempted To Further The Knowledge AndUnderstanding Of Financial Literacy Is India. Compared To Some Of TheOther Studies, The OECD Approach Is More Comprehensive As It AttemptsTo Measure The Influence Of A Range Of Explanatory Variables On TheThree Dimensions Of Financial Literacy, Namely, Financial Attitude,Financial Behavior And Financial Knowledge.  Journal of Commerce and Management Thought 5 - 3 478
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