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Context and Concern in Financial Education &

Literacy: India Specific Study

Project Report Submitted to

RESERVE BANK OF INDIA
BHUBANESWAR
ORISSA

By-BHISMA NARAYAN ROUT

RBI YOUNG SCHLOR 2010
 ACKNOWLEDGEMENTS
I am indebted to Reserve Bank Of India for granting me the
opportunity to transact a project under the “RBI Young Scholars Award”
Scheme.

My sincere gratitude and thanks are due to Shri. B.K. Bhoi (Regional
Director),My mentor Mr. A.K. Mohapatro (Assistant General Manager,
Personnel Department, Reserve Bank Of India, Bhubaneswar) for his guidance
and key inputs which were essential to complete the project.

I am grateful to Mr. Kalika Prasad Mohapatra (A.M, RPCD), Mr Jyoti

Shankar Mishra (A.M, RPCD) for their valuable contribution all through the
project.

Specially thanks to Mr. S. Behera (A.M, HRD) to help us

regarding the collection of project materials and making the project.

Finally I take this opportunity to thank all the employees of RBI,

Bhubaneswar, my friends, my colleagues and my parents for their blessings
and good wishes.

BHISMA NARAYAN ROUT

(RBI Young Scholar)

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FINANCIAL LITERACY

REPORT A PROJECT UNDERTAKEN AT

RESERVE BANK OF INDIA

BHUBANESWAR
www.rbi.org.in

IN PARTIAL FULLFILLMENT OF THE

“RBI YOUNG SCHOLARS AWARD”

PREPARED BY

BHISMA NARAYAN ROUT

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 CERTIFICATE
Certified that Shri. Bhisma Narayan Rout, Young Scholar for
the year 2010 has carried out the original project work entitled
“FINANCIAL LITERACY” under my guidance. It is also certified that
Shri.Rout has carried out the work to my Satisfaction and has
devoted his fullest time and efforts for completion of the project to
the satisfaction of RBI.

(A.K. Mohapatro)
Assistant General Manager
Personnel Dept.
Date:-

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 DECLARATION
I do hereby affirm that the project entitled “FINANCIAL
LITERACY” is submitted in partial fulfilment of the “RBI YOUNG SCHLORS
AWARD”.

The project is the result of my total exertion and hearty contribution,

accomplished under the guidance of Shri. A.K. Mohapatro (Assistant General
Manager, Personnel Department, Reserve Bank Of India, Bhubaneswar) .

Bhisma Narayan Rout

(RBI Young Scholar)

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 CONTENTS
1. What is RESERVE BANK OF INDIA
a) History
b) Management
c) Organisation
d) Functions of RBI

TOPIC- FINANCIAL LITERACY: The Context & Concern in

Financial Education &
Literacy-INDIA Specific Study

1. Financial Literacy-Background

2. Financial Literacy as a means to financial inclusion

3. Importance or Need of Financial Literacy

4. Barriers in the way of Financial Literacy

5. Financial Education : An International Experience

6. Financial Literacy: INDIAN Context

a. Challenges in promoting a financial Literacy Programmes
b. Possible Themes
c. Issues on Financial Literacy
d. Scope of Financial Education
7. Financial Literacy and Reserve Bank of India
Initiatives taken by RBI
8. Suggestions
9. Conclusion
10. Reference

What is RESERVE BANK OF

INDIA
History

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 The Reserve Bank of India is the central bank of the country. Central banks are a relatively
recent innovation and most central banks, as we know them today, were established around the early
twentieth century.

The Reserve Bank of India was set up on the basis of the

recommendations of the Hilton Young Commission. The Reserve Bank of
India Act, 1934 (II of 1934) provides the statutory basis of the functioning
of the Bank, which commenced operations on April 1, 1935.

The Bank was constituted to

* Regulate the issue of banknotes
* Maintain reserves with a view to securing monetary stability and
(First RBI Building 1935,

Kolkata)
* To operate the credit and currency system of the country to its advantage.

The Bank began its operations by taking over from the Government the functions so far being
performed by the Controller of Currency and from the Imperial Bank of India, the management of
Government accounts and public debt. The existing currency offices at Calcutta, Mumbai, Chennai,
Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue Department. Offices
of the Banking Department were established in Calcutta, Mumbai, Chennai, Delhi and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to
act as the Central Bank for Burma till Japanese Occupation of Burma and later up to April, 1947. After
the partition of India, the Reserve Bank served as the central bank of Pakistan up to June 1948 when
the State Bank of Pakistan commenced operations. The Bank, which was originally set up as a
shareholder's bank, was nationalised in 1949.

An interesting feature of the Reserve Bank of India was that at its very inception, the Bank was
seen as playing a special role in the context of development, especially Agriculture. When India
commenced its plan endeavours, the development role of the Bank came into focus, especially in the
sixties when the Reserve Bank, in many ways, pioneered the concept and practise of using finance to
catalyse development. The Bank was also instrumental in institutional development and helped set up
institutions like the Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of
India, the Industrial Development Bank of India, the National Bank of Agriculture and Rural
Development, the Discount and Finance House of India etc. to build the financial infrastructure of the
country.

With liberalisation, the Bank's focus has shifted back to core central banking functions like
Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments System and onto
developing the financial markets.

RBI Logo
In RBI logo there is a tiger in the middle which represents as the
National animal of India and there is a palm tree & the two elements are
covered with RESERVE BANK OF INDIA in English and Hindi.

Management
The management of the Reserve Bank is under the control of Central Board of Directors
consisting of 20 members:

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 a) The executive head of the Bank is called is Governor
who is assisted by four Deputy Governors. They are
appointed by the Government of India for a period of
five years. The head office of the Reserve Bank is at
MUMBAI.
b) There are four local boards at Delhi, Calcutta, Chennai
& Mumbai representing four regional areas, i.e.
northern, eastern, Sothern and western respectively.
These local boards are advisory in nature and the
Government of India nominates one member each
from these boards to the Central Board.
(RBI Tower MUMBAI)
c) There are ten directors from various fields and one
government official from the Ministry of Finance.
The Reserve Bank of India Act, 1934 requires that there must be at least six meetings in a year
and the gap between two meetings must not exceed three months. The Governor of the Reserve Bank
can call a meeting of the Central Board whenever he feels it necessary. The Governor and the Deputy
Governors are full-time officials of the Reserve Bank and are paid prescribed salaries and allowances.
Other directors are part-time officials and are given fare and allowance to participate in the meetings.

Organisation
Organisationally, the Reserve Bank operates through
various departments. They are:

i. Customer Service Department

ii. Department of Administration & Personnel
Management
iii. Department of Banking Operations and Development
iv. Department of Banking Supervision
v. Department of Communication
vi. Department of Currency Management
vii. Department of Economic Analysis and Policy
viii. Department of Expenditure & Budgetary Control
ix. Department of External Investments and Operations
x. Department of Government and Bank Accounts
xi. Department of Information Technology
xii. Department of Non-Banking Supervision (DNBS)
xiii. Department of Payment and Settlement System
xiv. Department of Statistics and Information Management
xv. Financial Markets Department
xvi. Financial Stability Unit

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 xvii. Foreign Exchange Department
xviii. Human Resource Development Department
xix. Inspection Department
xx. Internal Debt Management Department
xxi. Legal Department
xxii. Monetary Policy Department
xxiii. Premises Department
xxiv. Rajbhasha Department
xxv. Rural Planning and Credit Department
xxvi. Secretary's Department
xxvii. Urban Banks Department

Rural Planning and Credit Department

The Rural Planning and Credit Department formulates policies relating to rural credit and monitors
timely and adequate flow of credit to the rural population for agricultural activities
and rural employment programmes. It also formulates policies
relating to the priority sector which includes agriculture, small-scale
industries, tiny and village industries, artisans and retail traders,
professional and self-employed persons, state sponsored
organisations for Scheduled Castes and Scheduled Tribes and
Government Sponsored credit-linked programmes like Swarnjayanti
Gram Swarojgar Yojana (SGSY), Prime Ministers Rojgar Yojana (PMRY) etc. It
implements and monitors the Lead Bank Scheme which is aimed at forging a
coordinated approach for providing bank credit to achieve overall development of rural areas in the
country. The department also oversees implementation of the Banking Ombudsman Scheme.

(a) Broad Work Areas of the Department

• Monitoring and facilitating flow of credit to rural, agricultural and small scale industries'
sectors.
• Framing policies on priority sector lending.
• Making allocations for contribution to Rural Infrastructure Development Fund (RIDF) amongst
scheduled commercial banks.
• Implementing and monitoring Lead Bank Scheme which aims at forging a co-ordinated
approach for providing bank credit to achieve overall rural development.
• Giving financial and policy support to NABARD.
• Acting as regulators for Regional Rural Banks and State/Central Co-operative Banks.
• Monitoring implementation of Government-sponsored poverty alleviation schemes.
• Implementation of Banking Ombudsman Scheme: A scheme set up by the Reserve Bank of
India to give members of public an easy and inexpensive forum for redressal of their
grievances against banks.

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(b) Thrust Areas

• Credit delivery innovations

o Micro finance initiatives
o Kisan credit cards
• Restructuring co-operatives
• Framing guidelines for rehabilitation of sick SSIs

IMPORTANT ASPECTS RELATING TO PRIORITY SECTOR LENDING BY

COMMERCIAL BANKS

(i) Targets/Sub-Targets

The targets and sub-targets set under priority sector lending for domestic and foreign banks
operating in India are:

Category of advances Domestic banks Foreign banks in India

(i) Aggregate advances to priority 40 per cent of net bank 32 per cent of net bank credit
sector credit

(ii) Advances to agriculture 18 per cent of net bank No target

credit

(iii) Advances to weaker sections 10 per cent of net bank No target

credit

(iv) Advances to SSI No target 10 per cent of net bank credit

(vi) Export Finance Export finance does not 12 per cent of net bank credit
form part of priority
sector for domestic
banks

(ii) Activities

Broadly, the activities/ purposes financed by banks included in priority sector are:

a. Agriculture
b. Small scale industry
c. Small road and water transport operators
d. Retail traders and small business operators
e. Professional and self-employed persons
f. State-sponsored organisations for Scheduled Caste/Scheduled Tribe,
g. Educational loans, upto Rs. 0.75 million for studies within the country and Rs. 1.5 million for
studies abroad.
h. Housing up to Rs. 1.5 million in all areas for acquisition by individual. Rs. 0.1 million in
rural/semiurban areas and Rs. 0.2 million in urban/metropolitan areas for repairing of existing
unit)
i. Consumption loans for weaker sections,
j. Self Help Groups/ Non Governmental Organisations,
k. Software industry (having credit limits up to Rs 10
million from the banking system)

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 l. Food and agro based processing sector

(iii) Weaker Sections

The categories of borrowers included under weaker sections are:

i. Small and marginal farmers with land holdings of five acres and less, landless labourers,
tenant farmers and sharecroppers;
ii. Artisans, village and cottage industries where individual credit requirements do not exceed Rs.
50,000 ;
iii. Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY), Swarna Jayanti Shahari Rozgar
Yojana (SJSRY) and Scheme for Liberation and Rehabilitation of Scavangers (SLRS);
iv. Scheduled castes and scheduled tribes;
v. Beneficiaries under the Differential Rate of Interest (DRI) scheme;
vi. Self Help Groups.

Functions of Reserve Bank of India

Note Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue
bank notes of all denominations. The distribution of one rupee notes and coins and small coins
all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve
Bank has a separate Issue Department which is entrusted with the issue of currency notes. The
assets and liabilities of the Issue Department are kept separate from those of the Banking
Department. Originally, the assets of the Issue Department
were to consist of not less than two-fifths of gold coin,
gold bullion or sterling securities provided the amount of
gold was not less than Rs. 40 crores in value. The
remaining three-fifths of the assets might be held in rupee
coins, Government of India rupee securities, eligible bills of
exchange and promissory notes payable in India. Due to
the exigencies of the Second World War and the post-war
period, these provisions were considerably modified. Since
1957, the Reserve Bank of India is required to maintain
gold and foreign exchange reserves of Rs. 200 crores, of
which at least Rs. 115 crores should be in gold. The system as it exists today is known as the
minimum reserve system.

Banker to Government
The second important function of the Reserve Bank of India
is to act as Government banker, agent and adviser. The Reserve
Bank is agent of Central Government and of all State Governments
in India excepting that of Jammu and Kashmir. The Reserve Bank has
the obligation to transact Government business, via. To keep the
cash balances as deposits free of interest, to receive and to make
payments on behalf of the Government and to carry out their
exchange remittances and other banking operations. The Reserve
Bank of India helps the Government - both the Union and the States
to float new loans and to manage public debt. The Bank makes ways
and means advances to the Governments for 90 days. It makes loans
and advances to the States and local authorities. It acts as adviser to

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the Government on all monetary and banking matters.

Banker’s Bank

The Reserve Bank of India acts as the bankers' bank.

According to the provisions of the Banking Companies Act of 1949,
every scheduled bank was required to maintain with the Reserve
Bank a cash balance equivalent to 5% of its demand liabilities and 2
per cent of its time liabilities in India. By an amendment of 1962, the
distinction between demand and time liabilities was abolished and
banks have been asked to keep cash reserves equal to 3 per cent of
their aggregate deposit liabilities. The minimum cash requirements
can be changed by the Reserve Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible
securities or get financial accommodation in times of need or stringency by rediscounting bills of
exchange. Since commercial banks can always expect the Reserve Bank of India to come to their
help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the
lender of the last resort.

Custodian of Exchange Reserves

The Reserve Bank is the custodian of India’s foreign
exchange reserves. It maintains and stabilises the external value
of rupee, administers exchange controls and other restrictions
imposed by the government, and manages the foreign
exchange reserves. Initially, the stability of exchange rate was
maintained through selling and purchasing sterling at fixed
rates, but after India became a member of the International
Monetary Fund (IMF) in 1947, the rupee was delinked with
sterling and became a multilaterally convertible currency.
Therefore the Reserve Bank now sells and buys foreign
currencies, and not sterling alone, in order to achieve the
objective of exchange stability. The Reserve Bank fixes the selling and buying rates of foreign
currencies. All Indian remittances of foreign countries and foreign remittances to India are made
through the Reserve Bank.

Controller of Credit

As the central bank of the country, the Reserve Bank undertakes the responsibility of
controlling credit in order to ensure internal price stability and promote economic growth. Through
this Function, the Reserve Bank attempts to achieve price stability in
the country and avoids inflationary and deflationary tendencies in
the country. Price stability is essential for economic development.
The Reserve Bank regulates the money supply in accordance with
the changing requirement of the economy. The Reserve Bank

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 makes extensive use of various quantitative and qualitative techniques to effectively control and
regulate credit in the country.

Ordinary Banking Functions

The Reserve Bank also performs various ordinary banking

functions:
a) It accepts deposits from the central governments
and even private individuals without interest.
b) It buys, sells and rediscounts the bills of exchange
and promissory notes of the scheduled banks
without restrictions.
c) It grants loans and advances to the central
government, state governments, local authorities,
scheduled Banks and state cooperative banks,
repayable within 90 days.
d) It buys and sells securities of the Government of India and foreign securities.
e) It buys from and sells to the scheduled banks foreign exchange for minimum amount of Rs. 1
lakh.
f) It can borrow from any scheduled bank in India or from any foreign bank.
g) It can open an account in the World Bank or in some foreign central bank
h) It accepts valuables, securities, etc., for keeping them in safe custody.
i) It buys and sells Gold & Silver.

Supervisory Functions
In addition to its traditional central banking functions,
the Reserve bank has certain non-monetary functions of the
nature of supervision of banks and promotion of sound banking
in India. The Reserve Bank Act, 1934, and the Banking
Regulation Act, 1949 have given the RBI wide powers of
supervision and control over commercial and co-operative
banks, relating to licensing and establishments, branch
expansion, liquidity of their assets, management and methods of
working, amalgamation, reconstruction, and liquidation. The RBI
is authorised to carry out periodical inspections of the banks
and to call for returns and necessary information from them.
The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new
responsibilities on the RBI for directing the growth of banking and credit policies towards more
rapid development of the economy and realisation of certain desired social objectives. The
supervisory functions of the RBI have helped a great deal in improving the standard of banking
in India to develop on sound lines and to improve the methods of their operation.

Promotional Functions

With economic growth assuming a new urgency since Independence, the range of the
Reserve Bank's functions has steadily widened. The Bank now
performs a variety of developmental and promotional
functions, which, at one time, were regarded as outside the
normal scope of central banking. The Reserve Bank was asked
to promote banking habit, extend banking facilities to rural

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and semi-urban areas, and establish and promote new specialised financing agencies.
Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the
Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial
Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963
and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up
directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and
to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank
of India set up the Agricultural Credit Department to provide agricultural credit. But only since
1951 the Bank's role in this field has become extremely important. The Bank has developed the
co-operative credit movement to encourage saving, to eliminate moneylenders from the villages
and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance
and Development Corporation to provide long-term finance to farmers.

Financial Literacy
Background

Financial education or Financial Literacy can broadly

be defined as the capacity to have familiarity with and
understanding of financial market products, especially rewards
and risks in order to make informed choices. Viewed from this
standpoint, financial education primarily relates to personal
financial education to enable individuals to take effective actions
to improve overall well-being and avoid distress in matters that
are financial.

Organization for Economic Co-operation and

Development (OECD) has defined financial education as 'the
process by which financial consumers/ investors improve their understanding of financial products,
concepts and risks, and through information, instruction and/or objective advice, develop the skills
and confidence to become more aware of financial risks and opportunities, to make informed choices,
to know where to go for help, and to take other effective actions to improve their financial well-being.

The focus of any discussion on financial education is primarily on the individual, who usually
has limited resources and skills to appreciate the complexities of financial dealings with financial
intermediaries on matters relating to personal finance on a day-to-day basis. The process of economic
reforms, which includes deregulation and mercerisation, should have educating and empowering the
common person to participate in the financial marketplace with knowledge and confidence, as a
critical component of public policy.

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 The need for financial education is felt in the developed and the developing countries alike. In
the developed countries, the increasing number and complexity of financial products, the continuing
shift in responsibility for providing social security from governments and financial institutions to
individuals, and the growing importance of individual retirement planning make it imperative that
financial education be provided to all.

In the developing countries also, the increasing participation of a growing number of

consumers in newly developing financial markets will necessitate the provision of financial education –
if these markets are to expand and operate efficiently. In addition, the substantial growth of
international transactions during the last decade, resulting from new technologies and the growing
international mobility of individuals, makes the improvement in financial education, increasingly, an
international concern.

From a regulatory perspective, financial education empowers the common person and thus
reduces the burden of protecting the common person from the elements of market failure,
attributable to, de facto, information asymmetries. For example, the emphasis on market discipline, as
one of the three pillars of banking regulation, especially under Basel II, is best served by participation
of financially literate bank customers in the financial marketplace.

Financial education can make a difference not only in the quality of life that individuals can
afford, but also the integrity and quality of markets. It can provide individuals with basic tools for
budgeting, help them to acquire the discipline to save and thus, ensure that they can enjoy a dignified
life after retirement. Financially educated consumers, in turn, can benefit the economy by encouraging
genuine competition, forcing the service providers to innovate and improve their levels of efficiency.

Today’s complex financial services market offers consumers a vast

array of products and providers to meet their financial needs. This degree of
choice requires that consumers be equipped with the knowledge and skills
to evaluate the options and identify those that best suit their needs and
circumstances. This is especially true for populations that have traditionally
been underserved by our financial system. Financial education is also
essential to help consumers understand how to prevent becoming involved
in transactions that are financially destructive.

Financial literacy is considered an important adjunct for promoting financial inclusion and
ultimately financial stability. Both developed and developing countries, therefore, are focusing on
programmes for financial literacy/education.

In India, the need for financial literacy is even greater considering the low levels of literacy
and the large section of the population, which still remains out of the formal financial set-up. In the
context of 'financial inclusion', the scope of financial literacy is relatively broader and it acquires
greater significance since it could be an important factor in the very access of such excluded groups to
finance. Further, the process of educating may invariably involve addressing deep entrenched
behavioural and psychological factors that could be major barriers. In countries with diverse social and
economic profile like India, financial literacy is particularly relevant for people who are resource-poor
and who operate at the margin and are vulnerable to persistent downward financial pressures. With
no established banking relationship, the un-banked poor are pushed towards expensive alternatives.
The challenges of household cash management under difficult circumstances with few resources to fall
back on, could be accentuated by the lack of skills or knowledge to make well informed financial
decisions. Financial literacy can help them prepare ahead of time for life cycle needs and deal with
unexpected emergencies without assuming unnecessary debt.

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16 | P a g e
Financial Literacy as a mean to Financial
Inclusion
Basically financial education is the supply side and financial inclusion is the supply side. When
the awareness for financial education will be created among the people then they can be financially
included. It can be better understandable by the help of such diagram.
Supply Side

Education)
(financial

o
{Demand side (Financial Inclusion)}
This diagram shows that the relation between Financial education and financial literacy. When
more people are financially educated then more people will be financially included.
In the context of 'financial inclusion', the scope of financial education is relatively broader and
it acquires greater significance since it could be an important factor in the very access of such
excluded groups to finance. Further, the process of educating may invariably involve addressing deep
entrenched behavioural and psychological factors that could be major barriers. However, the
complementary relationship between microfinance and financial education is obvious and financial
literacy can increase the decision making power and prepare them to cope with the financial demands
of daily life.
In countries with diverse social and economic profile like India, financial education is
particularly relevant for people who are resource poor and who operate at the margin and are
vulnerable to persistent downward financial pressures. With no established banking relationship, the
un-banked poor are pushed towards expensive alternatives. The challenges of household cash
management under difficult circumstances with few resources to fall back on could be accentuated by
the lack of skills or knowledge to make well informed financial decisions. Financial education can help
them prepare ahead of time for life cycle needs and deal with unexpected emergencies without
assuming unnecessary debt.
As per an OECD study2, the provision of education programmes for the un/under banked groups can
play important roles:
_ They can encourage un/under banked consumers to enter into or make better use of the financial
mainstream,
_ They can help to retain them as successful account holders in the short term and
_ They can contribute to keeping them as savers for the long-term.

_ They can contribute to asset building among households

Importance of Financial Literacy

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 Financial education is increasingly important, and not just for investors. It is becoming
essential for the average family trying to decide how to balance its budget, buy a home, fund the

“Today’s financial world is highly complex when compared with that of a

Generation ago. Forty years ago, a simple understanding of how to maintain a
Checking and savings account at local banks and savings institutions may have been
Sufficient. Now, consumers must be able to differentiate between wide ranges of
Financial products and services, and providers of those products and services.
Previous, less-indebted generations may not have needed a comprehensive
Understanding of such aspects of credit as the impact of compounding interest and
The implications of mismanaging credit accounts.

children’s education and ensure an income when the parents retire.

Of course people have always been responsible for managing their

own finances on a day to day basis – spend on a holiday or save for new
furniture; how much to put aside for a child’s education or to set them up
in life – but recent developments have made financial education and
awareness increasingly important for financial well-being.

For one thing, the growing sophistication of financial markets means consumers are not just
choosing between interest rates on two different bank loans or savings plans, but are rather being
offered a variety of complex financial instruments for borrowing and saving, with a large range of
options. At the same time, the responsibility and risk for financial decisions that will have a major
impact on an individual’s future life, notably pensions are being shifted increasingly to workers and
away from government and employers. As life expectancy is increasing, the pension question is
particularly important as individuals will be enjoying longer periods of retirement.

Individuals will not be able to choose the right savings or investments for themselves, and
may be at risk of fraud, if they are not financially literate. But if individuals do become financially
educated, they will be more likely to save and to challenge financial service providers to develop
products that truly respond to their needs, and that should have positive effects on both investment
levels and economic growth.

There is virtually no country whose economy has developed and matured without a
corresponding deepening of the financial sector. And such deepening is possible only when
individuals and households are financially literate and are able to make informed choices about how
they save, borrow and invest. Indeed, it is possible to argue that the subprime problem would not
have grown to the explosive proportions that it did if people had been financially more ‘literate’.

Beyond the individual level - and this is equally important - greater financial literacy can aid a
better allocation of resources and thereby raise the longer-term growth potential of the economy.
India clocked average growth of around nine percent in the period 2004-08 before the global financial
crisis interrupted the growth trajectory. One of the key drivers of this growth has been the increased
savings rate in the economy, which reached a high of 36 percent of GDP in 2007/08, the year before
the crisis.

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 The increase in savings itself has been a consequence of the changing demographics and the
welcome trend of rise in household savings. However, nearly half our
population still lacks access to banking and other financial services. If we
can redress that and provide this ‘left behind’ population access to the
entire gamut of banking services, we could raise household and overall
domestic savings even further, and that will fulfil one of the necessary
conditions to achieve the double-digit growth that we aspire to.

To make that happen, we need to deepen the penetration and

expand the coverage of financial services to all sections of society and to all regions of the country in
a meaningful way, particularly to those at the bottom of the economic pyramid. Lack of financial
awareness and literacy is one of the main reasons behind lack of access to financial products or failure
to use them even when they are available. An NCAER and Max New York Life study shows that in
India, around 60 percent of labourers surveyed indicated that they store cash at home, while
borrowing from moneylenders at high interest rates - a pattern which increases their financial
vulnerability.

Financial literacy and awareness are thus integral to ensuring financial inclusion. This is not
just about imparting financial knowledge and information; it is also about changing behaviour. For the
ultimate goal is to empower people to take actions that are in their own self-interest. When
consumers know of the financial products available, when they are able to evaluate the merits and
demerits of each product, are able to negotiate what they want; they will feel empowered in a very
meaningful way. They will know enough to demand accountability and seek redressal of grievances.
This, in turn, will enhance the integrity and quality of financial markets. One big lesson is that financial
literacy is not just a public good; it is a merit good. What this means is that by deepening financial
literacy, not just individuals and households, even the society at large stands to benefit.

Financial education is important to both the security of individuals and the security of nations.
Enlightened societies today strive to ensure social cohesion as an integral part of economic
progress. Interesting and well-paid jobs are central pillars of social cohesion, but so are savings and
the building of capital to provide individuals with financial security, especially for their retirement.

That cohesion can be seriously undermined by major imbalances of wealth within nations.
Major inequalities between elements of society, especially along ethnic or racial lines, can be a recipe
for disaster. One way to avoid that catastrophic scenario is to ensure that everyone participates in
wealth, both in its creation and distribution. Along with good employment prospects, financial
education can play a key role in helping individuals and families build their assets.

Just as health education in primary and secondary schools helps children develop good life-
long dietary and hygiene habits, good financial education can provide them with the skills and habits
necessary to enable them to participate sensibly in financial markets. Moreover, well-informed
financial consumers ultimately lead to better financial markets, where rogue products are forced from
the market-place and confidence is raised.

To conclude, financial education has a role to play in so

many critical areas of everyday life:

• Financing home ownership;

• Financing higher education;
• Financing retirement security;
• Making people more astute when saving and investing;

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• Protecting individuals from those who prey upon the ignorance and greed of the unwary.

As in health, the state often becomes the protector of last resort, ensuring a minimum social
security net for the poor. Financial education should reduce those numbers and the burden on the
taxpaying public.

Financial Literacy: An International

Experience
It has been said; particularly in the context of the developed economies that while the young
do not save enough and do not fully understand the need for investments for future, many of the
elderly tend to feel the pinch of poverty. In this background, priority needs to be accorded to financial
literacy.

An international OECD study was published in late 2005 analyzing financial literacy surveys in OECD
countries. A selection of findings included:

• In Australia, 67 per cent of respondents indicated that

they understood the concept of compound interest, yet
when they were asked to solve a problem using the
concept only 28 per cent had a good level of
understanding.

• A British survey found that consumers do not actively

seek out financial information. The information they do receive is acquired by chance, for
example, by picking up a pamphlet at a bank or having a chance talk with a bank employee.

• A Canadian survey found that respondents considered choosing the right investments to be
more stressful than going to the dentist.

• A survey of Korean high-school students showed that they had failing scores - that is, they
answered fewer than 60 per cent of the questions correctly - on tests designed to measure
their ability to choose and manage a credit card, their knowledge about saving and investing
for retirement, and their awareness of risk and the importance of insuring against it.

• A survey in the US found that four out of ten American workers are not saving for retirement.

• In Israel, a study is underway into current financial literacy.

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So for solving these problems different countries have taken important decisions and opened many
institutions. Such of the examples are :-

IN U.K
In the UK, the Financial Services Authority (FSA) has launched the biggest ever campaign to
improve the financial skills of the population and imparting education to enable a better appreciation
of the risks and rewards inherent in financial instruments.

IN U.S.
The US Treasury established its Office of Financial Education in 2002. The Office works to
promote access to the financial literacy tools that can help all US citizens make wiser choices in all
areas of personal financial management, with a special emphasis on saving, credit management, home
ownership and retirement planning. The Financial Literacy and Education Commission
(FLEC),established by the Congress in 2003 through the passage of the Financial Literacy and
Education Improvement Act, was created with the purpose of improving the financial literacy and
education of persons in the United States through development of a national strategy to promote
financial literacy and education. The Federal Reserve, along with numerous other federal Government
agencies, is a member of this commission, which is supported by the Office of Financial Education.

The Federal Reserve System’s recently redesigned financial education website,

FederalReserveEducation.org, is dovetailed to increase the use of Federal Reserve educational
materials and promote financial education in the classroom. The website has material intended for the
general public, as well as materials specifically geared toward teachers and high school and college
students. It provides easy access to free educational materials, a resource search engine for teachers,
and games for various ages and knowledge levels. The other regional Feds also have various
interactive on-line programmes on their website designed to generate awareness about better
financial management and assessment of one's own financial position.

IN AUSTRALIA
In Australia, the Government established a National Consumer and Financial Literacy
Taskforce in 2002, which recommended the institution of the Financial Literacy Foundation in 2005.

Working closely with states and territories, the Foundation has produced a National
Curriculum Framework for Financial Literacy to provide benchmarks for teaching the school children
the importance of managing their money. The foundation works in partnership with government,
industry and community organisations in providing a national focus for financial literacy issues. Its
Advisory Board is responsible for contributing independent and strategic guidance on financial
literacy issues.

IN MALAYSIA
In Malaysia, the Financial Sector Master Plan, launched in 2001, includes a 10-year consumer
education program. This agenda includes infrastructure and institutional capacity development in the
areas of financial literacy, advisory services, distress management and rehabilitation. For this purpose,
the Bank Negara Malaysia in partnership with the financial industry and other government agencies,
has introduced the Financial Mediation Bureau, Deposit Insurance Scheme, Basic Banking Services
Framework as well as created a new class of licensed Financial Advisers. Savings and literacy programs
are also being promoted in schools. A one-stop centre has recently been established within the
central bank for the public to obtain information about financial services in Malaysia and to provide

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face-to-face customer service on general enquiries and complaints. These initiatives have been
reinforced by high levels of transparency and disclosure.

Organization for Economic Co-operation and Development (OECD)

Above all, The Organization for Economic Co-operation and Development (OECD) has been
taking a pro-active initiative in generating awareness about financial
literacy. It has recently released a major international study on
financial literacy titled 'Improving Financial Literacy' encompassing
practical guidelines on good practices in financial literacy and
awareness. These guidelines, in the form of a non-binding
recommendation, are designed to help countries devise and
implement effective financial literacy programmes, drawing from the
best practices in this area in OECD countries.

They promote the role of all the main stakeholders in financial literacy: governments, financial
institutions, employers, trade unions and consumer groups. In addition, they also draw a clear
distinction between public information provided by the government and regulatory authorities, and
that supplied by the financial analysts.

It is also important to devise ways to ascertain whether financial literacy has achieved its
objective, such as generating increased consumer awareness or a changed behaviour, a point will
return to a little later. The balance of evidence, however, suggests that such programmes tend to be
effective. For instance, in the United States, it has been observed that workers increase their
participation in retirement savings plans funded by employee and employer contributions when the
latter offers financial literacy programmes, whether in the form of brochures or seminars. Consumers
who attend one-on-one counselling sessions on their personal finances have fewer delinquencies.

Financial Literacy: INDIAN Context

Prior to the initiation of financial sector reforms in the early 1990s, the Indian financial system
essentially catered to the needs of planned development. Customers had little choice in financial
instruments. The segmented and underdeveloped financial markets meant that their exposure to risk
was also limited. In such a situation, customers could employ their basic skills to investing simple
financial products with assured returns, unconcerned about their risks. The relevance of financial
literacy was, at best, limited.

Pursuant to the process of globalisation, the economic and financial landscape in India is
undergoing a significant transformation. In the process, the economy has become more diversified
with new sources of growth. In tandem with these changes, it has been seen that modernisation of the
financial sector that has also become increasingly more diversified to meet the new requirements of
the economy. The financial sector has also increasingly leveraged on advances in technology which
has significantly changed the way financial business is being conducted. As market advances continue

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to expand the range of financial products and services, consumers are being faced with increasingly
multifaceted choices and options in the management of their personal finances and exposure to a
gamut of risks. In this complex financial landscape, it becomes important for consumers to have
improved access to information.

Significant changes have also occurred in the social sphere. While on the one hand, costs of
literacy have increased substantially, the longevity levels have also risen, on the other. Taken together,
this implies that the elderly are now required to achieve a constant rebalancing of their consumption
and investment portfolios. The increased life expectancy has also compelled employers to move away
from ad hoc funded superannuation schemes to defined contribution schemes. At the same time, the
advances in information technology have lowered the costs of information acquisition and processing
as also of searching a job. This, in turn, has significantly raised job mobility with attendant implications
for family size and expenditure patterns.

Financial literacy assumes importance in this changed financial environment. In considering

means to improve the financial status of families, financial literacy can play a critical role by equipping
consumers with the knowledge required to choose from a myriad of financial products and providers.
In addition, financial literacy can help provide individuals with the knowledge necessary to create
household budgets, initiate savings plans, manage debt, and make strategic investment decisions for
their retirement or for their children's education. Being educated financially also enables individuals to
better appreciate the possible contingencies and save for a rainy day, in an appropriate manner. It can
empower consumers to become better shoppers, allowing them to procure goods and services at
lower cost. This process, in turn, raises consumers' real purchasing power and multiplies the
opportunities for them to consume, save, or invest. Having these basic financial planning skills can
help families to meet their near-term obligations and maximise their longer-term financial well-being.

Financial literacy is also an integral component of customer protection. Despite concerted

efforts, the current state of transparency coupled with the difficulty of consumers in identifying and
understanding the fine print from the large volume of convoluted information, leads to an information
asymmetry between the financial intermediary and the customer. For example, customers are often
penalised for minor violations in repayments, although they have limited redressal mechanisms to
rectify deficiencies in service by banks, rendering the banker-customer relationship one of unequal. In
this relationship, it is the principal, that is, the depositor, who is actually far less powerful than the
agent, that is, the bank. The representations received in regard to levying of unreasonably high service
or user charges and enhancement of user charges without proper and prior intimation, and the
growing number of customer complaints against the banks, also testify to this fact. In this context,
financial literacy may help to prevent vulnerable consumers from falling prey to financially disquieting
credit arrangements.

Need of Financial Literacy in India

As per a comprehensive survey of over 63,000 Indian households to understand how India
earns, spends and saves:

A rural household’s total annual expenditure, including both routine

and unusual expenditure, amounts to Rs 41,000, resulting in a surplus
income of roughly about Rs 11,000. An urban household in contrast has a
surplus income of Rs 25,000. The survey also highlights disparities in saving

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habits. Levels of income, expenditure and saving related behaviour are linked to the age, education
levels and type of engagement of chief earner.

Salary and wage earners account for a low share of the total households (18.4%) but highest
share of the total earnings (30.8%) with an annual income of Rs 109,000. After taking care of total
expenses of Rs 76,000, these households have surplus income of about 30% of their income.

By contrast, a third of households earn their income from labour, but this group’s share in the
total earnings is only 16% and has surplus income just about 7.7% of their income. Similarly,
households with chief earner in late middle age (46-55 years) accounting for 21% of all households
have the highest surplus income (Rs 19,000 per annum) among all other age groups which is about
24%of total income.

The findings of this Survey clearly brought about a need for financial literacy in Indian
households. An astounding 96% of Indians across rural and urban India felt they would not survive for
more than a year in case of loss of their major source of income. However, when asked how confident
they were about their financial stability, an overwhelming 54% answered in the affirmative. This
misplaced financial optimism in most cases stemmed from knowing they had the support of a joint
family system. However, this is and will not hold true in a fast-changing social fabric amongst Indian
households.

More than half of the Indian households prefer to save by keeping their surplus income in
commercial banks. However, more than a third of Indians simply prefer to keep their surplus money at
home. Households opting for post-office deposits account for just 5%.

While top 20% of income earners save up to 44% of their income, the bottom 20% borrows
up to 33%. Although financial institutions (a bank or cooperative) constitute the main source of
borrowing, a significant proportion of Indian households rely on informal sources —principally the
money-lender in rural India —to make ends meet. Almost 40% of rural Indian households and a fourth
of urban Indian households borrow from the money-lender to meet expenditures such as health,
medical treatment and routine household expenditure.

Findings broadly confirm the fact that Indian households are in the habit of saving out of
household income, and also that they are fundamentally optimistic about their financial future. Yet, for
almost a quarter of households across the income spectrum, current income is insufficient for their
routine and unusual expenditure, creating a need for a reserve of financial assets for them to fall back
upon.

At the same time their awareness of strategic financial planning is relatively primitive. While
governments have a role to play for the poorest households, in general, financial security is the
responsibility of each household, and both the needs and the options available are more complex
today than before. The survey points to a tremendous need for enhancement of financial literacy and
education of households to do better in achieving lasting financial security.

Challenges in delivering financial education

Devising financial education initiatives for

the un/under banked has to take into account the
existing financial landscape, the social economic

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realities of this class and the fact that invariably, such groups are beset with low literacy levels.
The main difference in the financial planning for the poor families is that they have fewer
resources and opportunities. When people are struggling to make ends meet on a day-to-day basis,
good money management becomes a daily challenge. While they use many creative ingenuous
strategies to manage their money, these often develop through trial and error rather than by design.
Financial education has a role in "building the capacity of the poor to gain control, become proactive,
use information and resources to enhance their economic security and more effectively use financial
services". When better-informed clients become better consumers of financial services, financial
institutions benefit.
Further, as already mentioned, the process of educating may invariably involve addressing
deep entrenched behavioural and psychological factors that could be major barriers. For example, in
case of many of the microfinance initiatives operating on the 'group liability' concept it could be a
great challenge to drive home the very basic rationale for such an arrangement, starting from
inculcating the habit of small savings to appreciation of the concept of 'collective responsibility'.
A study regarding Mexican experience has highlighted that the social and cultural factors
embedded in the financial landscape greatly influence the ability of individuals to use financial
services effectively. Results indicate that in addition to material resources, the inherent nature of social
relations and community links played a crucial role in improving access to and use of financial
services. The transformation of financial information, knowledge, experience, attitudes and social
relationships into financial education and sophistication constituted a cognitive resource to reducing
vulnerability. This leads us to suggest that a culture of finance is an important catalyst for individuals’
change and development.
It is also important to note that financial education may contribute to behaviour modification,
but many factors lend to influence a person’s financial behaviour. Contrary to common belief,
motivation is cultivated internally and rarely can be cultivated—sustainably, at least—by an external
factor. The biggest obstacle to financial education is motivating individuals to pursue it. In other
words, financial education does not necessarily motivate individuals; motivation brings individuals to
financial education. Here the role of banks assumes importance as financial counsellors of the clients.

Educational System of Our Country

The Education system in India is very complicate. In India Education is job oriented. From the
child hood of a boy it is taught to him that what he should learn and what course he read etc. It is the
main weak point in Indian educational system, There are a few schools which provides the how to save
money and how can be they invest it from childhood. In India the school children think that Bank is
only for adults, there is no need for them in banks, because they don’t know what is the basic
functions of Bank, what a bank does etc. There are certain demerits of Indian educational system such
are:-
 The education is based more on rote memorization rather than understanding the subject.
 It doesn't promote creativity in the student.
 A lot of stress is on students to study for exams.
There is a need of outstanding revolution in the educational
system, when all school and college children have own their bank
accounts. Financial Education means not only educate the
peoples but also give them a comfortable life which they desire.

Possible themes
Inspire of the above challenges, it should be possible to arrive at a set of basic themes/issues
that could be addressed effectively through a financial education program. As per a study conducted
by the under the project "Financial Education for the Poor" by Microfinance Opportunities, a
microenterprise resource centre, a consistent demand was found for the following broad themes of
financial education:
 _ Money Management: How to proactively manage money

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  _ Debt Management: How to control debt and avoid over-indebtedness
 _ Managing Savings: How to save regularly and in a safe location
 _ Financial Negotiations: How to strengthen clients' bargaining position vis-à-vis
input
 suppliers, other household members, and financial institutions
 _ Use of Bank Services: How banks work and impose charges; How clients can
maximize bank services, interact with banks, and effectively use ATMs
An analysis of such programs in the OECD countries reveals that many educational
programmes are integrated into the provision of specific financial services, such as first or basic bank
accounts, checking and savings accounts and matched-savings plans while others adopt a broad
stand-alone approach, teaching budgeting, savings and credit management, etc., with no connection
to any product of service. Aims tend to vary according to the majority target population.
 _ for the generic unbanked, aims are to explain the benefits and use of bank account
ownership and services or to build up fundamental financial literacy skills.
 _ for low/moderate-income underserved consumers, most programmes offer advice
on general money and credit management; whereas others have a specific goal or are
embedded in schemes to encourage savings, asset-building and homeownership.
These initiatives aim to build economic empowerment and increase long-term self-sufficiency
in order to revitalize and stabilize disadvantaged communities.

Issues on Financial Literacy

One of the major barrier in the way of delivery of financial services is the lack of basic
knowledge and lack of awareness of the products and services available from the banks. It is
important to note that the Financial Inclusion Task Force of the United Kingdom, one of the pioneers
to talk of financial inclusion, has identified 'access to free face-to-face money advice' as an important
component of financial inclusion, apart from 'access to banking' and 'access to affordable credit'.
People need information and advice when they either save their money or get into debt. Such
information and guidance can best be delivered by appropriate mechanisms and if such effective
mechanisms are put in place through the banks, they in turn would reinforce the demand for financial
services.
Another impediment is the difficulty or the lack of ease of addressing issues that affect a
common man. Despite concerted efforts, the current state of transparency coupled with the difficulty
of consumers in identifying and understanding fine print information leads to an information
asymmetry between the financial intermediary and the customer. It is important to understand that
the lack of such awareness in itself amounts to risk; and the challenge is to make customers aware of
the various risk. In terms of promoting financial inclusion, much of the work is simply in providing
easily understood information in a safe and engaging environment.

Scope for Financial Education in India

Undoubtedly, there is a role for promoting financial education in the context of development
policies and programs to reduce vulnerability and expand opportunities for the poor. To this end,
there is a need to explore the potential for integrating financial literacy into various types of
development programs: microfinance, vocational education, skills training, business development,
health, and nutrition, agriculture, and food security programs. In the late 1990s a move in the UK and
US to have all Government payments made electronically contributed to heightening the importance
of financial exclusion as a policy concern. Electronic government payments have made having a bank
account essential in order to receive payments and benefits. This has made it all the more important
for unbanked consumers to access information on basic bank accounts savings accounts and other
financial services. Financial education programs would be required to access information on financial
services.

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 In India too, improved technology will enable, for example, Governments to make all
payments, including under various schemes electronically. I understand that in Andhra Pradesh, the
State
Government has taken initiative to make payments thorough e-seva. Other states have also
launched such initiatives. Governments should now explore the possibility of direct credit to bank
accounts. Eventually, part of the funds received by the beneficiary under various government schemes
and deposited with the banks can form part of the seed capital for forming Self Help Groups (SHGs)
for such beneficiaries. While some banks have on their own taken steps to provide such education,
any large scale delivery of financial education needs to leverage on the experience and expertise of
other agencies, such as private entities, non-governmental organizations, civil society organizations,
outlets of the corporate sector etc., apart from Government initiatives, wherever available.
The use of information technology offers a lot of promise in providing financial literacy and
education and experience in several parts of the country through the use of rural information kiosks,
mobile vans, etc. which have shown to what extent IT can be leveraged to provide information on
various products and services. Information kiosks can be run by the Business
Correspondents or installed in PCOs, etc. to disseminate information about not only banking
products, but also other useful information like input/output prices, insurance products, health
services, weather information, etc. Such variety of knowledge would help in better risk mitigation,
lesser documentation hassles while sanctioning loans, etc. The kiosks need not even have any
connectivity and the service personnel can perform most of the updating through electronic media
like CDs. Banks can provide funds for setting-up such kiosks and meeting the running costs or the
cost can be shared among banks, and the other organizations involved in the process. Some non-
banking initiatives are also being experimented in various parts of the country. In this context, the
project on financial counselling service for poor self-employed women in India started by SEWA is well
known. Project tomorrow, as it is called, was started in 2001 with a purpose to develop and test a
financial counselling curriculum to help participants manage money productively, plan ways to
increase assets, address life cycle events, and manage risks. Through this project, SEWA has set up a
training unit and training delivery system and is developing tools and procedures to monitor the
counselling work. The project began with market research to assess the needs and demand among
SEWA clients for financial education, followed by a 'training of trainers' course. SEWA is now providing
financial counselling to its clients through a weekly course. The initial experience suggests that
participants grasp the concepts presented and welcome new perspectives stemming from such
training.
 While talking about financial education, it is important that the focus also extends to the
urban populace, including the literate masses, which may not be having the financial acumen,
technology suaveness and may not be 'financially literate'. It is not that the urban masses are
well versed in the Internet Banking and other newer methods of banking; there continues to
remain a segment, which either avoids using the services due to lack of confidence or remains
unaware of the options available. Financial education to such target group would be mutually
beneficial.
Finally, the concept of financial education could ideally be stretched to cover economic education as
well. At a broader societal level, given the path of economic reforms India has embraced since the
early nineties, and the ensuing debates, it is imperative that the society and general populace be
objectively informed about the fundamental economic issues and the rationale for, at-times difficult,
choices to be made in this regard. This could go a long way in creating an informed and harmonious
democracy.

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Initiatives taken by Reserve Bank of
India towards Financial Education
The RBI, on its part, wishes to advance the cause of financial education in our country as part
of an overall strategy. The strategy pursued in this regard can be elucidated as follows. Concerted
efforts are underway to expand the reach of formal finance in view of recent emphasis on financial
inclusion. This needs to be buttressed with financial education to generate greater customer
awareness and understanding of financial products and services. Concurrently, a process of credit
counselling is being encouraged to help all borrowers, but particularly those in distress to overcome
current financial problems and gain access to the structured financial system.
The Banking Codes and Standards Board of India (BCSBI) has also been instituted which is
expected to ensure that the banks formulate and adhere to their own comprehensive code of conduct
for minimum standards of banking services, which individual customers can legitimately expect. And
finally, a Banking Ombudsman Scheme has been instituted for redressal of grievances against
deficient banking services, covering all the States and Union Territories.

The RBI has also been exploring the possibility of instituting a Depositor Protection Fund
(DPF). The Fund can be utilised towards generating greater awareness for the common man on issues
relating to financial education and counselling. This could be complemented with providing greater
role to our Regional Offices to promote financial education in their respective jurisdictions.

Project Financial Literacy

In India, the need for financial education is even greater considering the low levels of literacy
and the large section of the population, which is still out of the formal financial set-up. Towards
this end, the Reserve Bank of India (RBI), with the objective of disseminating information on the
Central Bank and general banking concepts to various target groups including school and college
students, has undertaken an initiative titled 'Project Financial Literacy.' The project also aims to
educate women, rural and urban poor, defence personnel and senior citizens on general banking
concepts.

Recently, a pilot programme has been launched on financial literacy in Karnataka. The
programme, launched by RBI in collaboration with the state government, will involve introduction of
financial and related material in the curriculum of schools and colleges. Significant steps would also be
taken to make financial literacy a part of non-formal education.
Children, today, are not money-smart and hence, it is imperative to teach them the basic
concepts of banking that would be useful for them in life. As a part of the project, RBI visit various
schools across India and hold various activities for students to sensitise them on financial concepts.
Project financial literacy has two segments.
First one is concerned with general topics designed to acquaint people with the basics of
banking, finance, markets, banking products and facilities.
And the second one aims at familiarising people with the functioning of our Central Bank in
areas like monetary policy, currency management, forex management, public debt
management and other similar topics."

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Elements of Project Financial Literacy
There are certain tools are provided by Reserve Bank of India towards Financial Literacy Such as:-

Financial Education Series (FES) Books

The financial education series books seek to educate the common man about banking,
deposit and loan facilities available and also about general financial matters from more information on
financial education series books at rbi.org.in.
Some of the financial education series books are:-
 Raju and the money tree
 Money kumar and the monetary policy
 Old man monetary
 Raju and the sky ladder
 Raju and the magical goat
 Money kumar and carrying for currency
The FES books has been designed to be implemented in two
modules, one module in which Money Kumar will familiarise
peoples with the role and functions of the Reserve Bank of
India; and through the other module, Raju will introduce them
to banking concepts.

Website For Common man

Reserve Bank of India has made a link in its website named “Common man”. This site is
available in 13 regional language including Hindi and English.

It provides knowledge about

The role and functions of RBI

How is India’s central bank relevant to the people
RBI regulations
Solve the FAQ of peoples
Provides information how to compliant against
commercial banks as well as central bank.
It also provides information on money, banking and
finance
This is a copy of the site for common man:-

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RBI young scholarship award scheme
To encourage learning about the Reserve Bank of India (RBI) among the
youth of the country, the RBI conducts a major awareness and sensitization
exercise on the role of the Reserve Bank and the banking system across the
country. This exercise, the ‘RBI Young Scholars Award Scheme’, exposes
youngsters to an actual banking and financial environment and inculcates a sense
of pride in the selected ones of having had the opportunity to associate them with a prestigious
organisation, the central bank of the country.

Currency Note Posters

The Reserve Bank of India provides currency note posters which name is “Know Your Bank
Note”. In this link RBI provides the security features of Indian currency Notes. These are from RS.10 to
Rs.1000 in all regional language.

Such copy of the currency note posters are:-

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Credit Counselling Centres
July-September, 2007The absence of proper financial counselling, coupled with inadequate financial
literacy levels has often resulted in pushing the consumers towards costlier options and eventual debt
traps. Thus, there is a need for financial counselling in all the areas.
A few banks have taken initiatives to start some centres in rural/ semi urban areas, which
offer financial education and credit counselling services. The objective of these centres is to advise
people on gaining access to the financial system including banks, creating awareness among the
public about financial management, counselling people who are struggling to meet their repayment
obligations and help them resolve their problems of indebtedness, helping in rehabilitation of
borrowers in distress, etc. Some of these Credit Counselling Centres (also known as Knowledge
Centres) even train farmers/ women groups to enable them to start their own income generating
activities to earn a reasonable livelihood.
The Working Group (Chairman: Prof.S.S.Johl) constituted by the Reserve Bank to suggest
measures for assisting distressed farmers had recommended that financial and livelihood counselling
are important for increasing the viability of credit. Further, the Working Group constituted to examine
procedures and processes for agricultural loans (Chairman: Shri C.P.Swarnkar) had also recommended
that banks should actively consider opening of counselling centres, either individually or with pooled
resources, for credit and technical counselling with a view to giving special thrust in the relatively

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under-developed regions. In the light of the recommendations of these two groups, the convenor
banks of the State / Union Territory Level Bankers' Committees were advised in May 2007 to set up,
on a pilot basis, a financial literacy-cum-counselling centre in any one district in the State/ Union
Territory, coming under their jurisdiction. Further, on the basis of the experience gained, the Lead
Banks concerned were advised to set up such centres in other districts.
To conclude, economic and financial sector reforms have placed higher disposable incomes
with the public. Availability of a variety of new financial products on both, credit and investment sides,
which are provided by a host of financial intermediaries has necessitated that the investing public
understands the nuances of each product and product supplier, and takes an informed decision about
where he should invest. At the same time, those who are not part of the formal financial system need
to be educated about banking and why they should have a relationship with banks. Financial
education is considered an important element for promoting financial inclusion and ultimately
financial stability. Financial education would benefit the financially-excluded by enabling them to
understand the benefits and the ways to join the formal financial system. It could also benefit the
financially-included by helping them make informed choices about the products and services available
in the market to their best advantage.

Initiatives taken by regional RBI offices in India

Hyderabad Regional Office
Hyderabad office of the Reserve Bank has formulated a multi-modal (informative display
through posters, brochures, multi-media presentations, video films, demonstrations, computer
games), multi-lingual (English, Hindi, Telugu and Urdu) and customised interactive strategies (like
stalls in exhibitions, visits to schools, colleges, villages, meeting with bankers, traders, farmers, SHGs,
tour of the Reserve Bank) for spreading financial literacy among the common persons in general and
school children, college students, farmers, women and villagers in particular.

New Delhi Regional Office

New Delhi Office brought out a comic book on basic banking, titled 'Raju and the Money
Tree'. A Core Committee on Financial Education, comprising of officers from RBI, New Delhi conceived
and scripted the story of the comic book as also handled the artwork. The comic book was brought
out in English and Hindi. Copies of the comic book were handed over to the officials of Government of
Himachal Pradesh at Simla on July 1, 2007 coinciding with the inauguration of the sub office. The
comic book was also brought out in Braille for the benefit of visually impaired persons. The services of
National Association for the Blind, New Delhi were taken for adapting the story from the comic book.

Chennai Regional Office

Chennai Office has brought out two comic books titled 'Currency Matters' and 'Bank Matters'
in English and Hindi as part of the Bank's financial education efforts. The stories for the comic books
were prepared in-house by a team of officers, drawn from various departments of the local office and
the artwork was out sourced. Copies of the comic books were handed over to the officials of
Government of Himachal Pradesh during the inauguration of the Simla sub-office on July 1, 2007. The
books are being translated into Tamil.

Bangalore Regional Office

Bangalore Office has released, under its FIN-LIT project, a series of four comic books, in
English and Kannada, dealing with (i) introduction to basic banking, (ii) deposits, (iii) SHGs loans
especially agricultural loans and other livelihood loans like Govt. Sponsored schemes, etc. and (iv)
other lifestyle enhancing loans like housing loans, vehicle loans, etc. and other products like ATM
cards debit, credit cards. A short film, based on the frames of the books, with voice over in Kannada
has also been released. As an initiative in reaching out to a larger audience, the Office had put up a

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 stall in the Mysore Dasara Exhibition where this film was screened along with other information of
relevance to the common man. The whole project of writing the stories and doing the illustrations was
undertaken in house.

Initiatives taken by Reserve Bank India, Bhubaneswar towards promoting

financial education and literacy
Financial Education- Credit Counselling:- Persuaded UCO Bank to open a credit counselling centre at
Balasore. The Centre plans to take up a Literacy drive in association with the local chapter of the
Chartered Accountants on Fundamentals of Book Keeping to SHG groups.

Financial Literacy:- The publication “Bank Matters” brought out by Chennai Office has been translated
into Oriya language and Santhali language. The books were released by Hon’ble Union Minister of
State (Shri Pavan Kumar Bansal) on November 14, 2007 at the 111th SLBC meeting at Bhubaneswar.

Publicity through TV / Radio:- As a supplement to the field level efforts, RBI, BBSR have also embarked
on a promotional biz. The SLBC contracted 15 minutes space per week for six months in DD and AIR
respectively in which a programme “SANCHAYA” on issues relating to Financial Inclusion (generic and
not bank specific) were discussed. The programme highlights financial literacy and addresses queries
from viewers. The broadcast covers 11 districts of Orissa. The expenses on this ad biz are on cost
sharing basis by SLBC members.

Social Campaign- Putting into practice what RBI preach:- RBI have sold the idea to the Rotary Club
(Bhubaneswar) to involve themselves in financial inclusion exercise in a slum in Bhubaneswar and
other cities. The Rotary Club received the idea warmly and in association with Vijaya Bank introduced
financial inclusion programme in the identified slum in which 1700 slum dwellers were brought under
the fold of banking. Most of them are migrant labourers from Andhra Pradesh and RD’s address to
them in Telugu (lasting for about 15 minutes) spurred them to open the accounts.
100% Financial Inclusion :- One of the objectives of “Financial education” is to help inclusive growth.
Ganjam District (population 31.60 lakh) has been declared as 100% financially included. Till now in
Orissa 27 districts are declared 100% financially included Out of 30 districts. The rest three districts are
Jharsuguda, Malkanagiri & Nabarangapur.
Mission Approach:- The Anganwadi workers of State Government act as business facilitators and are
being paid Rs 10/- per account opened by the branch concerned. The expenditure on photographs of
the financially excluded persons approaching the bank for opening the accounts is borne by the
branch concerned. Our officers are frequently interacting with the business facilitators and
coordinators to educate them about the mission.
Educating School children and rural population:- The State Level Essay Competition for school children
on financial inclusion organised by RBI was received warmly.

Financially Literacy Programmes held by Orissa Regional Office

S. no Date Place Organisations Involved Covered people

Maitapur G.P in Simulia Block of Meeting with Farmers club viz.

1 7.2.2009
Balasore District Palli Pragati Krushak Mancha,

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 educate the villagers of the
2 23.05.09 Padmasekharpur, Bhubaneswar UCO BANK advantages of opening bank
accounts.
Indian Bank, Microsate branch,
3 27.05.09 INDIAN BANK SHG Groups
Cuttack Road
SHG Group members and
4 15.06.09 SBI, Sakhigopal, Puri STATE BANK OF INDIA
NGOs
UCO Bank Bhograi SHG Groups and Farmer club
5 19.06.09 UCO BANK
(Chandaneswar-Gazipur) members
St Xaviers High
6 14.07.09 Students of IX & X standard
School,BBSR
BJB English Medium
7 21.07.09 Students of IX & X standard
School, Bhubaneswar
DAV School, Pokhariput,
8 27.07.09 Students of IX & X standard
Bhubaneswar
Kalinga Institute of Social Students of VIII, IX & X
9 01.08.09
Sciences standard
Marsaghai High
10 03.08.09 Students of IX & X standard
School,Kendrapara
Bipin Bihari School,
Deaf and dump students of
11 06.08.09 Bhubaneswar for the deaf
VIII, IX & X standard
and dumb
Bhima Bhoi School for the
Visually challenged students of
12 07.08.09 Visually Challenged,
VIII, IX & X standard
Bhubaneswar

13 14.08.09 Zilla School Puri Students of IX & X standard

Palli Unnayana Seva Samiti Xaviers Institute of

14 18.09.09 Students of IX & X standard
Naharkanta, Bhubaneswar Management, Bhubaneswar
Baliyatra Exhibition,
15 Nov 2nd to 8th 2009 General Public
Cuttack
Nov 21st to 24th Confederation of Indian
16 General Public
2009 Industry- exhibition

Initiatives taken by Orissa State Govt. Towards Financial Literacy

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Orissa state govt has supplied some financial education books to the public especially to the women
of the state who don’t know about the basic financial aid or services. Some examples of the financial
literacy books are:-

Conclusion
Financial literacy is an understanding of personal finance and the ability to use that
understanding to benefit your economic condition. Those with financial literacy deficiencies often find
it hard to manage money and save for long-term personal goals, such as buying a house or retiring.

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Increasing your financial literacy is the first step toward improving your financial condition.
Accordingly, literacy training has increased significantly in recent years.

Financial literacy can be promoted by bringing in wider section of public within the
institutional literacy framework. Such institutional initiatives would largely focus on improving literacy
standards. Also, all financial service providers have a moral responsibility to bring in a fair degree of
transparency and fairness, more so those engaged in selling financial products and financial
counselling and the ethical grid within which they are supposed to work. This initiative is no less
challenging than propagating financial literacy to the members
of the public.

There is a need for banks and other agencies striving to extend financial education to the
masses to appreciate that financial inclusion is a continuous process. Efforts to extend literacy to make
the common man enabled by being aware of the evolving functional, legal and technical issues cannot
be a one-time effort.

A common effort of the educational programmes typically focuses on the 'supply' side that
stresses on attracting customers in the financial fold. However, what is needed is to have is an "auto
pilot" concept, where the prospective customer is empowered to make / demand the desired services.
This could create a qualitative 'demand' situation of the financial services.

The objective of financial education is also customer protection. It helps customers to better
understand and manage financial risk and deal with complexities of the market place and take
advantage of increased competition and choice in the financial sector. The RBI, on its part, intends to
advance the cause of financial education in the country as part of an overall strategy. Currently, a
process of credit counselling is being encouraged to help all borrowers, particularly those in distress,
to overcome current financial problems and gain access to the structured financial system.

However, in the ultimate analysis financial education is only one pillar of an adequate
financial policy to improve financial literacy and expand access to financial services. It can
complement, but not replace other pillars such as greater transparency, policies on consumer
protection and regulation of financial institutions.

This project has argued that financial literacy is important at many levels. It is an essential
element in enabling people to manage their financial affairs and can make an important contribution
to the soundness and efficiency of the financial system, and to the performance of the economy.

Improved financial literacy can benefit individuals and families by giving them more control
over their money and helping them make better financial decisions. Good financial literacy skills will
build the capacity of Indians to better understand and manage financial risk, and take advantage of
increased competition and choice in India’s finance sector.

Financial literacy needs to be embedded in the India culture in the same way that Indians
know how to ‘Slip, Slop, Slap’ before going out into the sun, or ‘Buckle Up’ their seatbelt before
driving their vehicle. Financial literacy is in the interest of India as a whole, and the creation of a
financially healthy India is the responsibility of all – government, the private sector and community-
based organisations. It is too large a task for
one group of stakeholders to achieve on their own.

The final result is not to create financial experts; it is more important to equip individuals with
sufficient knowledge to make sense of financial activities, seek out appropriate information, feel able
to ask relevant questions, and be able to understand and interpret the information that they
subsequently acquire.

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Suggestion
Create Awareness & Financial Literacy
Governments and all concerned stakeholders should promote unbiased, fair and coordinated
financial education.
Financial education should start at school, for people to be educated as early as possible.
Financial education should be part of the good governance of financial institutions, whose
accountability and responsibility should be encouraged.
Financial education should be clearly distinguished from commercial advice; codes of conduct
for the staff of financial institutions should be developed.
Financial institutions should be encouraged to check that clients read and understand
information, especially when related to long-term commitments or financial services with
potentially significant financial consequences: small print and abstruse documentation should
be discouraged.
Financial education programmes should focus particularly on important life-planning aspects,
such as basic savings, debt, insurance or pensions.
Programmes should be oriented towards financial capacity building, where appropriate
targeted on specific groups and made as personalised as possible.
Future retirees should be made aware of the need to assess the financial adequacy of their
current public and private pensions schemes.
National campaigns, specific Web sites, free information services and warning systems on
high-risk issues for financial consumers (such as fraud) should be promoted.
Intensive awareness, education and promotion drive to create an in-depth impact on the
masses.
Government should promote introduction of basic banking – relevance, services, merits as a
topic in secondary and higher secondary classes in all education institutions.
Government sponsored publicity campaigns through all Medias – radio; television;
newspapers e-choupal ; village panchayat ;movies ; local stage shows etc
Banks should design and organize aggressive education cum promotion campaigns in
unbanked parts of urban, semi – urban and rural areas to enhance financial literacy and
awareness, as well as to remove the doubts and apprehensions that the masses have towards
the banking sector.
Banks should involve the knowledgeable and well-informed local inhabitants in such activities.
This will help the banks to consolidate and ensure, prompt and extensive response from
Populace.

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 Banks should gather support from the NGOs, retired bank personals, and academic
institutions, to reach the desired numbers within a limited span of time. Once the fallacy is
removed from the minds of the general public, they automatically will join the mainstream.
The all round awareness and education simulation will drive them to open savings and current
accounts. This will mark the beginning of basic banking in true sense.

Web sites Promoting financial Literacy & education : World Wide

India

http://rbi.org.in/commonman/English/Scripts/Home.aspx

Official multilanguagnal website of Reserve Bank of India for common man. It is available in 13
regional languages excluding Hindi & English. It provides basic as well as complex banking terms to
the public with simple words.

http://rbi.org.in/financialeducation/home.aspx

Official website link of RBI for providing financial education to the school and college going children.
In this link some financial education series (FES) books are available which provides knowledge about
Banking and the role of RBI.

http://www.personalmoney.in/

This is a site which provides knowledge about

Financial Planning
Insurance
Loans
Retirement
Tax

http://www.financialexpress.com/

This is an Indian website which is engaged in providing news about

Industry Sectors
Markets
Companies
Economy
World News
Banking & Finance

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 Australia

www.understandingmoney.gov.au

The “Understanding Money” website of the Financial Literacy Foundation

www.mceetya.edu.au/mceetya/default.asp?id=14429

The National Financial Literacy Framework site provides curriculum in printed and interactive form.

www.cfltaskforce.treasury.gov.au/content/discussion.asp?NavID=4

www.liberal.org.au/2004_policy/Super_for_All_and_Understanding_Money_merged.pdf

Australia’s Financial Literacy Foundation has not published a strategy. The closest things are the report
of the Consumer and Financial Literacy Taskforce, available on the Treasury Department’s website, and
the Government’s 2004 election policy, which announced the establishment of the Foundation.

New Zealand

www.retirement.org.nz/

New Zealand Retirement Commission (main site)

www.sorted.org.nz/

New Zealand’s Retirement Commission maintains “Sorted,” a comprehensive site that provides well
organized materials and tools for different ages and stages of life (from kids through retirement).

Canada

www.fcac-acfc.gc.ca/eng/default.asp

Financial Consumer Agency of Canada

www.cfee.org/

Canadian Foundation for Economic Education

www.yourmoney.cba.ca/eng/index.cfm

Your Money site, managed by Canadian Bankers Association

www.ida.ca

Investment Dealers Association of Canada

www.financialfitnesschallenge.ca/en/

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The IDA has a link to the “Financial Fitness Challenge,” run by the Canadian Securities Administrators
and designed to teach basic financial skills to youth and young adults. That same site has a “teacher
resource centre” tab that leads to materials teachers can use in their classroom.

www.kidscansave.gc.ca

This site has been “under construction” in recent weeks.

http://chp-pcs.gc.ca/CHP/index_e.jsp

Canada Health Portal

United Kingdom
www.fsa.gov.uk/

Financial Services Authority

www.moneymadeclear.fsa.gov.uk/

The Financial Services Authority’s “Money Made Clear” site

www.basicskills.co.uk/site/page.php?cms=8&p=1402

The Basic Skills Agency’s Adult Financial Capability Framework

www.pfeg.org

The Personal Finance Education Group is an educational charity created in 2000 to help young people
gain confidence, skills, and knowledge in financial matters.

www.resolutionfoundation.org/

The Resolution Foundation is an independent research and policy organization concerned with how
people on low to moderate incomes fare in today’s mixed welfare economy.

United States
www.mymoney.gov/default.shtml

Financial Literacy and Education Commission

www.jumpstart.org/

Jumpstart Coalition

International
www.plainlanguagenetwork.org/

Plain Language Association International

http://www.oecd.org/home

OECD brings together the governments of countries committed to democracy and the market
economy from around the world to:
Support sustainable economic growth

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 Boost employment
Raise living standards
Maintain financial stability
Assist other countries' economic development
Contribute to growth in world trade
The Organisation provides a setting where governments compare policy experiences, seek answers to
common problems, identify good practice and coordinate domestic and international policies.

Reference
Special address by Ms Shyamala Gopinath, Deputy Governor of the Reserve Bank of India, at
BANCON 2006, Hyderabad, 4November 2006.
The Role of Financial Education: The Indian Case-Inaugural Address by Dr. Y. V. Reddy,
Governor, Reserve Bank of India at the International Conference on Financial Education
organised by OECD at New Delhi on September 21, 2006.
Financial Education: Worthy & Worthwhile speech by Dr. Duvvuri Subbaro, Governor, Reserve
Bank of India , at the RBI-OECD workshop at Bangalore on march 22, 2010.
Financial Inclusion through financial Literacy & Credit counselling( Address by Dr. K.C.
Chakrabarty, Deputy Governor, Reserve Bank of India, at the launch of Federal Ashwas trust on
November 30, 2009 in Kochi, Kerala.
Financial Literacy: Concept & its importance in India by Mr. Bhusan Bhatia, Sr Faculty, Punjab
National Bank, Regional Staff College, Panchakula
Importance of Financial Literacy in the Global Economy” Keynote Address by The Hon. Donald
J. Johnston, Secretary-General of the OECD to the Financial Education Summit, Kuala Lumpur,
12 December 2005

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