Financial Education: Worthy and Worthwhile by Duvvuri Subbarao - આરબીઆઈ - Reserve Bank of India
Financial Education: Worthy and Worthwhile by Duvvuri Subbarao
Financial Education: Worthy and Worthwhile* Duvvuri Subbarao Mr. Pranab Mukherjee, Hon’ble Finance Minister of India, Ambassador Richard Boucher, Deputy Secretary General, OECD, Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, Mr. V.K. Sharma, Executive Director, Reserve Bank of India, Distinguished Guests and my colleagues from the Reserve Bank Outreach Programme 2. I am happy to claim, with a deep sense of fulfillment of course, that between all of us in the top management of the Reserve Bank, we have visited at least one village in every state and most union territories. Given that India has over 600,000 villages, our coverage was, by all accounts, miniscule. Even so, it has been an enormously rewarding experience for us as individuals and for the RBI as an institution. We learnt more this way than what we could have by reading hundreds of reports and attending scores of meetings and conferences. And what is more, it was a lot more fun than sitting in air-conditioned offices in skyscrapers. If I were to single out one important lesson from these visits, it is about the growing aspirations and the rising awareness of rural people. We were all struck by how much rural women knew about saving and investment and struck even more by how eager they were to learn more about saving and investment. 3. It is axiomatic that when income levels rise, the time horizons of households become longer. From thinking about the next agriculture season, they start thinking about the next five years, and then about their children's future and their own old age. These are healthy concerns on which we must capitalize. This realization sensitized all of us in the Reserve Bank that we will be failing in our mandate if we do not address the challenge and the opportunity of financial literacy head on. That is the reason why learning from this workshop on furthering financial literacy is important and valuable to us in the Reserve Bank. Partnering with OECD 4. It is our privilege and good fortune to have the OECD as a co-sponsor for this workshop. The OECD has been an intellectual leader in the field of financial literacy. It has been involved in supporting research and evaluation in financial literacy and has been proactive in spreading awareness about the importance of financial education. The OECD is by far the most valuable repository of knowledge on grass root experiments in financial literacy. Learning from these international best practices can certainly help India to “leapfrog” over several stages of the process. Partnering with OECD is therefore a huge and valuable learning opportunity for India. Why is Financial Literacy Important? 5. Let me step back a bit and spend a few minutes on why financial literacy is so vital. 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 sub prime problem would not have grown to the explosive proportions that it did if people had been financially more ‘literate’. 6. 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. 7. 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 fulfill one of the necessary conditions to achieve the double-digit growth that we aspire to. 8. 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 laborers surveyed indicated that they store cash at home, while borrowing from moneylenders at high interest rates - a pattern which increases their financial vulnerability. 9. 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 we have learnt in our outreach programmes 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. Reserve Bank’s Initiatives 11. We have taken a number of measures over the last few years to further financial inclusion and financial literacy. We have intensified these efforts in the last one year. I do not want to go into them as you will have opportunity to discuss, and I hope critique, these measures in the course of this workshop. But I do want to highlight what the Reserve Bank and commercial banks have agreed upon. RBI’s Advice to Banks on Financial Inclusion
Let me stop there so that you can get on with the serious business of engagement with issues in financial literacy. Once again my thanks to OECD for partnering with the Reserve Bank and best wishes for the success of this workshop. * Comments by Dr. Duvvuri Subbarao, Governor, Reserve Bank of India at the RBI-OECD International Workshop on Financial Literacy in Bengaluru on March 22, 2010. |