Introduction

Financial literacy can be simply defined as the capacity to understand and apply financial concepts such as Budgeting, investing, credit management, and financial management. In other words, financial literacy is the capacity to handle money.

India has far lower financial literacy rates as compared to other countries, according to the NCFE Financial Literacy and Inclusion Survey, 2019. The financial literacy level for India is at 27%. It is imperative to increase this percentage to avoid financial fraud, misinformation and negligence.

Throughout my work at multiple NGOs and in the school finance committee, I learned that most children don’t understand the simple difference between wants and needs, the importance of investing and what to prioritise and what not to. They don’t even know how investing works. We can’t even blame these children, as how will they learn if we don’t teach them?

I would like to ask everyone, what is the purpose of learning Shakespeare if we don’t know how to file taxes? What is the point of learning calculus if we don’t know how opening a bank account works? The education system doesn’t focus on preparing us for the future.

Our grade established a finance committee in school because we understood its importance. I conducted focused financial literacy workshops at Sanshil Foundation. My first question for the students was, “If I gave you 10,000 rupees right now, what would you do?” All of them replied and said that we would go out or we would spend it on shopping. Not a single one said that I would use this opportunity to invest in it.

The importance of starting early 

In their twenties, people are more focused on enjoyment and think, “I’ll just start investing when I’m 30, when I earn more. “If you invest 20,000 per month from 30 to 60 at 12% per annum, you will accumulate a return of ₹5,44,19,464 v/s if you start investing when you’re 20, you would have accumulated a staggering ₹18,62,61,420. This is the magic of compounding. Even my parents didn’t know about this in their early twenties. The children at Sanshil Foundation were stunned when they found out the difference. This sparked a sense of curiosity and thinking in them.

Socio-economic empowerment 

Financial literacy is crucial in developing countries as access to financial knowledge is limited and economic challenges are more prevalent here.

Financial literacy leads to socioeconomic empowerment; people are more likely to make more informed financial decisions if they understand how money and investing work. It enables people to break the vicious cycle of poverty by saving, investing and spending rationally. Beyond reducing poverty, financial literacy bridges the gap between being a teenager and an adult as it teaches teenagers everyday adult tasks such as filing taxes.

Conclusion

I would like to conclude this article by discussing what needs to change. Financial education must be mandatory in school; schools should integrate financial concepts such as the calculation of returns from systematic investment plans and stock market risk evaluation in higher grades. Learning how to file taxes, how to take loans, and the importance of maintaining a good credit score should be as important as studying history.

We are responsible for creating future leaders and embodying the new India.