The state of financial literacy in India is extremely grim. According to data released by the Invest India Incomes and Savings Survey 2007, only 9.6 per cent of the urban population in the income category of Rs 5 lakh plus understand that nationalised banks don’t guarantee deposits.The survey also discloses that almost 83 per cent of the Indian earning population doesn’t know what a stock market is. In urban areas, in the income group of less than 2.5 lakh a month, almost 50 per cent have not heard of the stock market while in villages, as many as 91 per cent have not heard of the concept. Says Delhi-based financial planner Surya Bhatia: “I am little surprised as I think that almost 95 per cent of retail investors investing in the stock market don’t understand it, they go by what their broker says.”If this is the case with the stock markets, the situation is even worse for mutual funds (MFs). According to Invest India Dataworks executive director Sandeep Ghosh, “Barely 9.5 per cent of Indian earners have heard of mutual funds and only half of them can actually describe what a mutual fund is. Also, for mutual funds, the idea of systematic investment plan (SIP) has not actually percolated and people who have not invested in mutual funds think they are too costly.” The situation for insurance is better as it is a retail product and because of the incentives that it offers to distributors for promotion.With Prime Minister Manmohan Singh and finance minister P Chidambaram both stressing the need for financial inclusion of rural India, the survey shows the enormity of the challenge before the government and industry. It shows that financial literacy has not been able to penetrate the urban population, which has greater access. “When we talk of financial literacy, we forget that only 5-6 per cent of our country’s population is English-literate,” said Knowledge Networks chairman Rakesh Khurana. “With almost all our sources of financial knowledge in the English language, how will people understand?”The situation seems a little better when it comes to understanding the importance of regular savings. Still, around 25 per cent of the population in the higher income group (earning more than Rs 5 lakh per annum) do not understand its importance.What’s heartening is Indians’ understanding of risk. Almost 89 per cent of the people in the income group above Rs 2.5 lakh a year understand that high risk results in higher returns and vice versa.
