Make Money To Make More Money

By Kevin Gandhi

Edited by Nandita Singh, Senior Editor, The Indian Economist

As the OECD puts it, Financial Literacy is “A combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial well being.” This definition fits right into the bill. Theoretically, it is assumed that the primary functions of money are to act as a medium of exchange and a measure of value. However, if you think about it, there is a shrouded function of money stuck at the back of everyone’s heads that precedes its primary function – we essentially earn money, to make more money.

The common notion that persists today is that if I have, say, 100 Rupees, I will save some of it and deposit the same into my bank wherein I will receive interest and therefore, my money can keep multiplying by a small but steady percentage over a given period of time. However, what most fail to realize is the fact that one’s per capita income can increase by a considerable margin, only if they do not let their wealth loaf.

India’s ball game:

As per a survey conducted by MasterCard in April-May 2013, India lies amongst the bottom 16 countries in the Asia-Pacific region. This rank was given in accordance with an Index that was conceptualized by the MNC where the countries were ranked on 3 aspects:

1. Basic Money Management – 50% weightage
2. Financial Planning – 30% weightage
3. Investment – 20% weightage

India scored 50 index points in the Basic Money Management parameter – the lowest among 16 countries in the regions. Retrogress was seen in the Investments parameter, wherein the index points fell by 1.

Another study conducted by professors at IIM, Ahmedabad in collaboration with the Citi Foundation, found that as compared with global standards in financial literacy, which were also poor themselves, India’s performance was more than just distressing. The survey was conducted on the basis of 3 parameters:

1. Financial knowledge
2. Financial behavior
3. Financial attitude

Moreover, each of these parameters was tested on 3 target consortiums of people, namely:

1. Students
2. Young employees
3. Retired persons

The study primarily credited poor numeracy skills and a less-than-satisfactory elementary and primary education system in the country, for this poor performance.

Educational Credibility:

There’s no doubt when it comes to the importance of education; however, issues arise when it comes to retention. If you explain a theory to a student in the 9^th grade, it is more than likely that the student won’t be able to apply the said theory to practicality when he’s graduated from high school. This happens due to lack of a revision parameter in future grades, resulting in an overall weak foundation.

Jump$tart Coalition for Personal Financial Literacy is an American amalgamation of national organizations seeking to improve the state of financial literacy for students, from pre-kindergarten all the way to college graduation. According to a study conducted by them, students that take a full semester course in personal finance do not take pecuniary decisions any better than those that haven’t.

Another study undertaken by Tsu-Chin Martina Peng (Ohio State University) found that having taken a personal finance course in school is apparently unrelated to investment knowledge. This can be perhaps attributed to the fact that such financial decisions require more practical than theoretical knowledge along with a certain aggregate of experience

There are several other studies that have found that such education in early years is of no practical use. However, one cannot completely blindside the importance of it. Learning about finances in school may become redundant, but its importance too cannot be ignored. It helps students enter and recognize the world of finance even though it may not necessarily prepare them for taking concrete decisions in the field. Therefore, a bona fide solution can be to educate such a sector of people that are close to entering the corporate world, or are within an ace of taking such decisions.

RBI’s Initiatives:

The RBI, over the past few years, has asked leading commercial banks in certain districts to draw road maps ensuring that all villages having a population of more than 2000 have access to financial services. Moreover, all commercial banks inclusive of public, private and foreign banks are to come forward with their respective board approved plans for the awareness and spreading of financial literacy with an intention of rolling out such plans in the near future.

Through this whole mental picture of financial literacy, it is more than evident that no matter what field one chooses as a career path – computer science, fashion designing or even engineering, a basic knowledge of how to manage one’s finances and using one’s money to make more money is extremely essential. Once this happens, a macro-effect will be created consequently, increasing per capita income and therefore boosting the economy.

Kevin is a second year, undergraduate business student at NMIMS University, Mumbai. His hobbies include listening to bands such as Coldplay and Oasis, writing, going on nightly runs and occasionally playing the guitar. He has also participated in various Model UNs across the country. He loves to travel and is an enthusiastic supporter of the Kolkata Knight Riders.