As India’s economy continues to grow, it is becoming increasingly important for young people to have a strong foundation in finance. Unfortunately, financial literacy is not always prioritised in our education system, leaving many teenagers without the skills they need to manage their money effectively and inculcate good habits early on in life.
The importance of learning finance as a life skill cannot be overstated. According to a 2019 survey by the Organisation for Economic Co-operation and Development (OECD), only 24 per cent of 15-year-old Indian students demonstrated basic financial knowledge. This is concerning as knowledge of the financial system is a key life skill that will benefit young people throughout their lives as more are included in formal sectors of the economy and as saving returns are more market-driven. On the other hand, a lack of familiarity with managing their money can lead to poor decisions, high levels of debt and limited opportunities for economic advancement. Some of this is seen in “loan app” predatory lending and even in the more mundane credit card debt.
Even though we have stepped out of an ‘FD’ based savings culture, savings evolving as financial tool has not led to early financial literacy among young adults and the primary cause is the education system itself. While at the school level financial concepts may be taught (sometimes as a part of economics or accounting courses), these are not mandatory and not all students have access to this education. Anecdotally, according to an OECD survey in 2019, just 30 per cent of Indian schools reported that they taught financial education. This means that many teenagers are left to learn about fiscal prudence on their own, often through trial and error.
To put that in perspective, another 2019 survey by the Reserve Bank of India found that over 50 per cent of young Indians aged 18-35 have a credit card or personal loan. Unfortunately, many of these individuals, when they are eligible for financial products, do not fully understand the terms and conditions, leading to high levels of debt and missed payments. According to a 2018 research paper, “The pressure to spend unnecessarily is very high amongst students due to peer pressure, high brand awareness, poor money management skills, etc. During college years, the urge to spend is unlimited while the resources are limited. Unfortunately, social status and peer pressure prevent many of these students from admitting that. In such situations many resort to ‘borrowing’. While borrowing from immediate friends and family might not be that big of an issue, borrowing through other methods like credit cards, personal loans, instant loan apps, etc. turn into serious debt issues.” Learning finance as a life skill early is especially important in India, where economic mobility may be limited for many young people as, according to a report by the World Bank, some 26 per cent of the population aged 15-24 is employed in formal wage jobs, a data point which is reflected in national PAN card issuance. This means that many will need to create their own opportunities through entrepreneurship or investment and a strong foundation in financial literacy can help them achieve their goals.
The good news is that learning about savings for the long term and debt as a life skill is not difficult and quite useful especially at a young age – think piggy banks. It simply requires a commitment to education and access to age-appropriate resources like blogs, podcasts, and videos. In addition, there are financial literacy programs available from organisations like the National Institute of Securities Markets (NISM) in Mumbai.
Parents, guardians and educators have an important role to play in promoting financial literacy among children. According to a study by the National Centre for Financial Education (NCFE), a non-profit company promoted by Reserve Bank of India, parents who discuss money with their children are more likely to have children who save and invest. NCFE Teachers who incorporate financial education into their lessons can help students develop a strong foundation in finance.
Learning money management as a life skill is essential at an early age. By prioritising financial education, systemic help can ensure that the next generation of Indians is equipped with the skills they need to succeed in an increasingly complex financial world.
(The writer is a partner at Infinity Alternatives)