Why financial literacy is essential for millennials

We Millennials belong to a generation of highly curious people, with hearty levels of curiosity and a plethora of ways to satisfy it. What is missing are proper mechanisms and insightful guidance to better navigate through the various streams of information thrown at us left and right. Given the advent of smartphones and the internet age, the whole world is literally at our fingertips, but as is the case with the inefficient allocation of resources, we have been granted far too much power , and no proportionate gray matter to justify it. The same is reflected in how we manage, rather, mismanage our finances.

Again, it’s not entirely our fault. What most of us would probably do is browse a few YouTube videos on the subject, or peruse Robert Kiyosaki’s best-selling book, and try to extrapolate those learnings to real life. But that’s not how the cookie crumbles. Managing finances is an art that requires discipline, patience and open-mindedness.

If we talk about the general level of financial literacy in the country, we come to the conclusion that it is incredibly low. According to a recent study conducted by the Securities and Exchanges Board of India (Sebi), only 27% of the Indian population is financially literate.

In such a situation, it becomes all the more important that financial literacy as a discipline be included in the curriculum of students, from their formative years. Unfortunately, it didn’t, and for good reason. First, no one really knows how to teach financial literacy, and as a result, subject matter experts are very hard to find. Teachers usually lack this knowledge themselves and are therefore ill-equipped to teach it further. In addition, finance is often a taboo subject at home and is not talked about openly. Parents are generally reluctant to discuss financial matters with their children, for two main reasons. One is that they are probably unsure of their methodology when it comes to managing finances, and the other is that they themselves are unsure of their knowledge on the subject. Another reason why the majority of our population is not financially literate is that the world of finance, taken as a whole, is very intimidating. The financial jargon is complex, difficult to grasp and it prevents people from going deeper.

It is of the utmost importance for any citizen to be familiar with the world of finance, credit systems and debt management. Financial literacy is the synergy of these three elements and helps us make responsible decisions. An inherent lack of literacy on the subject is exactly what prevents people from accumulating their dream retirement corpus, as they end up investing in savings or insurance plans that offer minimal returns. Low financial literacy has left millennials massively unprepared for unprecedented financial crises.

Take the case of an unsuspecting urban student who had just entered adulthood. The student came across an app launched by a fintech company, whose business revolved around providing payday loans. He was fascinated by the prospect of easily taking out small loans, which could be repaid at a decent pace. The student inevitably became addicted and therein lay his loss. Bewitched by the ease of obtaining these funds, he lost sight of the exorbitant figures that were accumulating in the form of interest. This is a very small example, but it illustrates how problematic a lack of awareness of the implications of debt instruments can be, as defaults that appear once on the credit report tend to stay there for seven years, making him / unable to access credit when needed.

Inducing the detail of personal finance into the lives of young people in their formative years could actually go a long way in protecting them from future uncertainties and better sustaining themselves by being able to explore all possible financial products and options. Moreover, it would help them to be better equipped to effectively achieve their financial goals and mitigate their expenses through regulation.

An improvement in financial literacy will have a positive impact on the entire population and will considerably improve its ability to secure its future.

Financial literacy is a difficult problem to solve, but when mastered, it can significantly ease the burdens of life. Obviously, a head start for the same would be a significant help, and that’s what we need to start working towards.

Anand K. Rathi is Managing Partner and Head of Strategy at Augment Capital Services LLP.

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