Importance of financial literacy in new wave of economy growth

Individuals cannot be financially literate and independent if they do not use the digital financial services available in the country. Digital financial literacy is an opportunity to make the economy stronger

By Dr Rashmi Soni and Ekta Swarnakar

Published: Jun 7, 2024 11:43:00 AM IST

Updated: Jun 7, 2024 12:04:01 PM IST

What is more important, literacy or financial literacy? The Indian economy needs an answer to this question. In this dynamic, rapidly evolving, and unpredictable economy, acquiring adequate financial literacy is vital for every individual to succeed and grab new opportunities despite turbulence. As we head toward a developed economy, we must equip ourselves with financial knowledge, skills, attitudes, and behaviours to become financially literate. Financial literacy will not only empower an individual with their financial stability, future planning, financial decisions, and retirement planning, but it will empower and develop the whole economy because the development of an individual results in the development of the family, society, and the nation.

The financial literacy rate of India is lower than that of other developed nations, and to overcome this, the New Education Policy (NEP) 2020 has identified financial literacy as one of the essential elements for student development and stated in favour of financial literacy being taught at all levels. Young children are the future of India, and if they gain initial financial literacy in the initial stage of life, they can confidently navigate through economic uncertainty and transform obstacles into chances for development and success. India's progress and sustainable development are mapped out by financial literacy. The Viksit Bharat @ 2047 agenda envisions India becoming a developed nation by 2047 with Economic prosperity, social advancement, environmental sustainability, and effective governance. India's finance minister, Nirmala Sitharaman, predicted that the country's GDP will reach $30 trillion by 2047. To achieve this, Finance is the only key to economic prosperity, and financial literacy is essential for achieving monetary policy objectives, which include financial knowledge and livelihood.

Over the past ten years, the global economy has seen significant transformations, beginning with the Great Recession and continuing with the more recent disruptions caused by the COVID-19 pandemic. One who had significant financial knowledge and skills survived in the market but who lacked financial literacy got financial stress. Globalisation and privatisation significantly influenced financial market development because private and foreign companies also entered the Indian financial market. The value of financial literacy has become increasingly apparent to the general population in these unsettling times. India's GDP is currently the fifth largest globally, behind the US, China, Germany, and Japan. In 2022, it passed the UK. There are complex financial products available in the market. Knowledge, abilities, and self-assurance to assess possibilities and select the optimal financial solution for financial well-being are imparted through financial literacy.

Also read: India needs more discipline and world-class financial institutions: Uday Kotak at FILA 2024

Digital financial investment provides an opportunity to diversify portfolios and export different investment options to set financial goals for the future. The skills and information needed to use digital financial services sensibly and successfully are included in digital financial literacy—understanding online banking, cryptocurrency, investing platforms, digital payments, budgeting tools, and cybersecurity best practices. Sound knowledge of digital banking empowers individuals to protect themselves from online scams, handle their finances sensibly, and make informed choices. Financial services are now easier to access because of the rise of fintech. With the help of these tools, well-informed individuals can maximise their financial strategy and investigate new investment options. The country's digital revolution began in July 2015 when the Indian government unveiled the Digital India program, which aims to turn India into a knowledge-based economy supported by digital technology. Digital financial literacy may lead to greater productivity, job creation, financial growth, and an enhanced Indian economy.

Digital financial literacy has many advantages, but several issues hamper the adoption of this knowledge. Significant gaps exist in the availability of digital technologies in urban and rural regions. Rural India also contributes to the Indian economy, but if they gain digital financial literacy, they may help to accelerate the economy positively. To accomplish this, the Indian education system must take the initiative suggested by NEP 2020. Financial and digital financial literacy should be taught in schools and colleges at all levels to fulfil the goals of Viksit Bharat. Individuals cannot be financially literate and independent if they do not use the digital financial services available in the country. Digital financial literacy is an opportunity to make the economy stronger and larger.

Dr Rashmi Soni (Professor - Finance, K J Somaiya Institute of Management)

Ekta Swarnakar (Research and Teaching Associate, K J Somaiya Institute of Management)

This article has been published with permission from K J Somaiya Institute of Management. https://kjsim.somaiya.edu/en/