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Financial literacy helps to learn, grow, and acquire financial decision-making skills for adults.
Students are better prepared for unforeseen medical costs, household expenses, and unemployment. Furthermore, young students with financial insights and understanding formulate retirement incomes in a better way.
Long-term budgeting using day-to-day income and expenses helps in better savings and investing in profitable funds.
The National Education Policy (NEP) 2020 highlighted the importance of early financial literacy and favored for the inclusion of financial literacy at all educational levels.
Financial literacy
refers to the
capability to
understand and
effectively manage
personal finances.
According to the Standard & Poor's Global Financial Literacy Survey, India has a financial literacy rate of just 24 per cent, compared to the global average of 35 per cent. Contrary to that , the United States has a financial literacy rate of 57 per cent, and Canada has a rate of 68 per cent.
About 20 percent of the world's population lives in India, but more than 76 per cent of its adult population is not familiar with the most fundamental financial ideas.
This major gap in financial literacy levels between India and developed countries highlights the need for early financial education. Projections state that India will continue to be the fastest-growing economy for the next decade. However, without proper financial knowledge, the country's citizens might not be able to make the most of this vast economic opportunity that lies ahead of them.
Financial Literacy Index (FLI) across States
Low (<=0.33) | Medium (>=0.34 to <=0.53) | High (>=0.53) | |
Rural India | Arunachal Pradesh, Assam, Bihar, Jharkhand, Manipur, Meghalaya, Nagaland, Uttar Pradesh | Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Mizoram, Orissa, Punjab, Rajasthan, Sikkim, Tamil Nadu, Telengana, Tripura, Uttaranchal, West Bengal | Chandigarh, Delhi, Goa, Himachal Pradesh, Kerala, Pondicherry |
Urban India | Assam, Bihar, Manipur, Meghalaya, Mizoram, Nagaland, Uttar Pradesh | Andhra Pradesh, Arunachal Pradesh, Chhattisgarh, Delhi, Gujarat, Haryana, Jharkhand, Kerala, Madhya Pradesh, Maharashtra, Orissa, Pondicherry, Punjab, Rajasthan, Sikkim, Tamil Nadu, Telengana, Tripura, Uttaranchal, West Bengal | Chandigarh, Goa, Himachal Pradesh, Karnataka |
Reserve Bank of India (RBI) disclosed the study results as part of its June bulletin 2023 at the Numaish All India Industrial Exhibition, Hyderabad. It organized the survey from April to May 2022 to understand India’s financial literacy levels across metrics such as age, income level, education, etc.
While the overall financial literacy score in India stood at 12.4 out of 19 in the survey, retirees scored the highest at 13.5, leading to them being the most financially literate.
Retirees got the best score at 13.5 in financial literacy, followed by those aged 50 and above, with income levels of Rs 1 lakh and above, at 12.8.
In percentage terms, retirees scored 69.6 per cent, showing their fair financial knowledge. The daily wage earners scored the minimal at 56.5 per cent in financial literacy levels.
Financial literacy was assessed on knowledge, behaviour, and attitude.
Gender: Of the three financial literacy components, financial behaviour was alongside financial knowledge.
However, the financial attitude was greater in females who scored less in financial literacy than males. Women have a good financial attitude but lack financial behaviour and knowledge, reducing their financial literacy score. Males score stood at 63 per cent, whereas females score was 61.4 per cent.
The survey shows that financial literacy is more in higher age groups, greater income levels and education.
Age: Though retired people have the greatest overall score, they had insufficient financial knowledge compared to people aged 40 to 59. Similarly, respondents aged 30 to 39 had an average score regardless of their high score in financial behaviour due to a lack of financial attitude and knowledge.
Place of living: The respondents living in metros scored high on financial knowledge and behaviour but lacked financial attitude and secured lower overall financial literacy scores.
Income Level: The respondents with incomes between Rs 20,000 and Rs 50,000 have lower financial literacy as compared to those with a monthly income of less than Rs 20,000 or more than Rs 50,000.
Respondents with an average monthly income of Rs 1 lakh or more aced the financial literacy score, with a 65.4 percent score.
Education: The survey found that financial literacy is lower in respondents with education levels up to boards than those with higher education. The education level shows the difference in financial literacy over all its three components. Apart from that, married respondents have better financial literacy than those who are single. Also, the salaried respondents were more financially literate than the self-employed and homemakers.
Financial literacy by Education
Education | Elementary | Moderate | Advanced | Illiterate |
Illiterate | 48.31 | 8.37 | 0.12 | 43.19 |
Primary | 44.17 | 16.74 | 0.61 | 38.48 |
Secondary | 41.99 | 35.92 | 6.32 | 15.78 |
Diploma | 24.71 | 48.65 | 20.22 | 6.42 |
Graduate & Above | 21.01 | 44.43 | 29.56 | 5 |
All | 42.8 | 20.8 | 4.23 | 32.17 |
Financial Literacy by Income
Income Groups | Elementary | Moderate | Advanced | Illiterate |
Quintile-1 (Bottom) | 51.33 | 15.79 | 1.38 | 31.49 |
Quintile-2 | 46.22 | 17.45 | 1.63 | 34.71 |
Quintile-3 | 44.86 | 19.67 | 2.48 | 32.99 |
Quintile-4 | 39.86 | 23.74 | 4.24 | 32.16 |
Quintile-5 (Top) | 31.62 | 27.39 | 11.42 | 29.57 |
Total | 42.8 | 20.8 | 4.23 | 32.17 |
Quintiles segregate data samples into five equal parts that uncomplicate the data and help to understand the difference between ranges. Such as 0-20% of the bottom segment of the population in a given sample represents the first quintile. Similarly, 20- 40% represents the second quintile, 40-60% represents the third, 60-80% represents the fourth, and 80-100 is the fifth or upper quintile.
Investment Behaviour across Levels
Level of Financial Literacy | Mutual Fund | Shares in companies | Debentures/ Bonds in Companies | Shares in Co-operative Society |
Elementary | 28.7 | 50.3 | 1.2 | 19.8 |
Moderate | 66.5 | 27.5 | 0.2 | 5.8 |
Advanced | 75.5 | 22.1 | 0.4 | 1.9 |
Illiterate | 8.5 | 69.5 | 0 | 22.1 |
All | 68.4 | 26.4 | 0.4 | 4.8 |
Financial Literacy by Employment types
Household Types | Elementary | Moderate | Advanced | Illiterate |
Self-Employed | 45.63 | 19.64 | 3.12 | 31.61 |
Regular | 31.54 | 29.39 | 10.65 | 28.42 |
Casual | 45.19 | 17.62 | 2.19 | 35 |
Total | 42.8 | 20.8 | 4.23 | 32.17 |
The RBI survey was one of its initiatives to increase financial literacy in the country. The results show that its work must pay attention and concentrate on all three metrics used for measuring financial literacy.[6]
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FAQs on Financial Literacy
What is financial literacy, and why does it matter?
Financial literacy refers to the knowledge and understanding of financial concepts and skills necessary to make informed and effective decisions about money. It matters because it empowers individuals to manage their finances wisely, make informed financial decisions, and achieve financial goals.
How can I improve my financial literacy?
You can improve your financial literacy by seeking out educational resources such as books, online courses, workshops, and seminars focused on topics like budgeting, saving, investing, debt management, and retirement planning.
Why is financial literacy important for young adults?
Financial literacy is crucial for young adults as it equips them with essential money management skills early in life. It helps them avoid common financial pitfalls, make informed decisions about student loans, credit cards, and savings, and build a solid foundation for their financial future.
What are some common financial mistakes people make due to a lack of financial literacy?
Common financial mistakes due to a lack of financial literacy include overspending, not saving enough for emergencies or retirement, carrying high-interest debt, investing without understanding risks, and falling victim to financial scams or fraud.
How can parents teach financial literacy to their children?
Parents can teach financial literacy to their children by involving them in age-appropriate discussions about money, setting a good example of responsible financial behavior, giving them opportunities to earn and manage money, and using everyday situations as teachable moments.
Where can I find trustworthy resources for improving financial literacy?
Trustworthy resources for improving financial literacy include government websites, nonprofit organizations, financial institutions, and reputable educational platforms. Look for resources that provide accurate, unbiased information on topics relevant to your financial goals and interests.
What are the key principles of financial literacy that everyone should know?
Key principles of financial literacy include budgeting, saving for emergencies and future goals, managing debt responsibly, understanding credit scores and reports, investing wisely, planning for retirement, and protecting against financial risks through insurance.
How does financial literacy impact economic stability and growth?
Financial literacy plays a crucial role in promoting economic stability and growth by fostering a financially educated population capable of making sound financial decisions. It leads to increased savings, investment in productive assets, reduced financial vulnerability, and overall economic resilience.
What are some practical steps I can take to enhance my financial literacy?
Practical steps to enhance financial literacy include tracking expenses, creating a budget, setting financial goals, reading books or articles on personal finance, attending financial education workshops or webinars, seeking guidance from financial professionals, and staying informed about financial news and developments.
Is financial literacy education offered in schools?
Financial literacy education varies by country and region, but many schools now offer some form of financial education curriculum. However, the extent and quality of financial education may vary, and individuals may need to supplement their learning with additional resources outside of school.
How can I assess my own level of financial literacy?
You can assess your own financial literacy by evaluating your knowledge and understanding of key financial concepts, such as budgeting, saving, investing, and debt management. There are also online quizzes and assessments available to help gauge your financial literacy level.
Where can I find trustworthy information and resources to improve my financial literacy?
Trustworthy information and resources for improving financial literacy can be found through reputable sources such as government agencies (e.g., Consumer Financial Protection Bureau), nonprofit organizations (e.g., National Endowment for Financial Education), financial institutions, and certified financial education professionals. Additionally, educational materials provided by universities and online learning platforms can offer valuable insights into financial literacy topics.
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