In India, the Three R's Are Being Joined by an 'F': Financial LiteracyPublished: August 15, 2012 in India Knowledge@Wharton
Despite numerous high-profile scams in which ordinary people across the globe have been bilked of their savings, financial education has never been on the priority list for most countries. In the U.S., for example, the Securities Exchange Commission has only this year started its survey of the state of financial literacy in the country. That effort was mandated under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Some 600 million people in India are "unbanked", meaning they lack a bank account. "We must get them into the mainstream. We cannot have equitable growth without inclusion," says former banker K.V. Kamath, who is now non-executive chairman of IT firm Infosys. Inclusive banking has moved to the top of the agenda. But patronizing a financial institution doesn't mean that people escape the attention of moneylenders and other unscrupulous elements. To avoid them, and the dangers they bring, requires financial literacy.
This realization has made financial education more of a focus in India. Regulators led by the Reserve Bank of India (RBI) and the Securities & Exchange Board of India (SEBI) have unveiled a draft National Strategy for Financial Education. They have been seeking public comment about the draft, and a final policy paper is expected to be unveiled soon.
Various studies and surveys show that financial education has become increasingly important all over the world. According to a global survey by credit card company Visa, the average person in the U.S. has only 2.9 months of expenses saved. Less than 50% have the discipline of a household budget. The U.S. is 4th globally in overall financial literacy. India was 23rd out of the 28 markets surveyed. India also ranked near the bottom when it came to talking to children about managing money.
The draft of the National Strategy is aware of the dimensions of the task. "Financial inclusion is one of the topmost policy priorities of the government," the document's authors wrote. "Financial literacy and education play a crucial role in financial inclusion, inclusive growth and sustainable prosperity." The draft argues that one of the top distribution channels for financial education should be the classroom. "People should be educated on financial matters as early as possible in their lives. Financial education should start at school."
Schools are the best target, agrees Sumit Agarwal, associate professor of finance and real estate and research director of the Centre for Asset Management Research & Investments at the University of Singapore. "The most vulnerable are the young and the old -- the old because they have declining cognitive abilities and the young because they have very little financial market experience." Educating children about financial matters "will have long-term consequences. When they grow older, they will make better decisions. They will also help their parents and grandparents to make better decisions," says Agarwal.
While the national policy is still a work in progress, other organizations are already launching like-minded efforts. The National Institute of Securities Markets (NISM) has been conducting a program called "Pocket Money" for the past few years. NISM functions as a public trust and has been established and funded by SEBI. The RBI has an interactive website centered on financial literacy for children and has produced comic books on the topic.
The private sector also sees financial education as an opportunity area. Money-Wizards, a Chennai-based company, is one of the more active. "Our courses for schoolchildren integrate key concepts in finance, economics, business and critical thinking, and provide them with life skills," says Money-Wizards director Venkatesh Varadachari. "We have programs for the elementary level (class 3-5), middle (class 6-9) and high school (class 10-12)."
There are several other stakeholders, including banks, finance companies, nonprofits and regulators, such as the Insurance Regulatory and Development Authority (IRDA) and the Pension Fund Regulatory and Development Authority (PFRDA). The IRDA has also created a comic strip character -- Ranjan -- to explain insurance. The PFRDA is charting out its course for financial education. Both these bodies were part of the subcommittee of the Financial Stability and Development Council (FSDC) that prepared the draft report on financial education. The FSDC is a super regulator created by the government in the aftermath of the global financial crisis. (All these organizations are independently seeking comment on the draft report.)
Teaching Saving on a Shoestring
Clearly ahead in the race to catch young people's interest is Pocket Money. "This is one of our many educational initiatives," notes M.L. Soneji, until recently director of NISM. "The numbers show it has been very successful." In 2008-2009, the year the program was launched, 151 schools were covered and 230 teachers were trained. In 2009-2010, the program reached 3,876 students. In 2011-2012, Pocket Money was in 360 schools, reaching a combined 50,946 students. "We are set to grow even faster," says Murli S. Iyer, Pocket Money's head coordinator.
Pocket Money is a shoestring operation in terms of people. "If you look at the large number we have to cover, it is evident that we cannot have a centralized model," notes Soneji. "We need a structure in which we act as facilitators rather than as active participants." The institute provides the infrastructure and the secretarial back up, plus guidance from the board level. Iyer is the only NISM employee devoted to Pocket Money.
"I decide on a particular area and then go and meet all the available principals and trustees of the schools in the neighborhood," says Iyer. "I get them to agree to try out the program. Then we all meet at a nearby place, generally one of the schools." At this meeting, Iyer and the NISM brass explain the details of the program. They ask the principals to buy in; most of them do. This is followed by a meeting with the teachers who go on to conduct the classes.
"The training-the-trainer session with teachers is conducted at various places in the country," says NISM senior vice-president for financial literacy Nitin Tike. "During this session, NISM [asks for a pledge] from the school principal that the school will devote 12 hours of the academic calendar to incorporate the program either in the timetable or during post-school hours. Books and course material are distributed to the student community only after that."
Neha Chheda, principal of Shishuvan, a Mumbai-based school, is very pleased with the Pocket Money effort. She conducted the classes on financial education two years ago. But the students' calendar is already full with other courses. Finding the time to put these classes into the daily routine is a challenge. "But I will do this course again soon," she notes.
Like NISM, Money-Wizards conducts financial education programs across the spectrum -- from schools to colleges to companies. "We cannot afford to subsidize any part of our activity, unlike some government agencies," says Varadachari. "Each segment needs to be financially viable on its own." Money-Wizards is currently working with 15 schools in Tamil Nadu (Chennai is the capital of the state) and Bangalore. Next stop is Hyderabad (Andhra Pradesh) and overseas to Singapore. "The school activity is profitable," notes Varadachari. "But only barely so."
As a private sector company, Money-Wizards deals with less bureaucracy than many public efforts. The organization has started summer camps for schoolchildren that teach financial basics. The young people are sold on the "fun" element; the parents on the "education" part. The response, according to Varadachari, has been encouraging. He defines success as a course or product that is financially viable. So, by his yardstick, Pocket Money is not competition.
Agarwal of the University of Singapore also feels that mere numbers don't mean success. "As an economist, I would prefer if the scheme is randomly introduced in some schools and not others," he says. "Follow the program in the treated and control sample schools and then study the true impact of the scheme on the students' ability to make better financial decisions. You could ask the students to make financial decisions after three-to-six months in a lab with some examples of real-life decisions and see if the students in the treated sample do better. I think this would be highly beneficial."
But Pocket Money and Money-Wizards may be facing a threat from an unlikely source -- the new Financial Education draft. The paper suggests that financial education be made a part of the regular education at schools. "The most effective way is to weave financial education in the normal content of the curriculum," according to the paper. "For example, compound interest is taught in arithmetic as an abstract concept of 'A' lending to 'B' at some interest rate compounded annually. This can be turned into an opportunity for financial education by weaving in a problem of a company that borrows from a bank or a bank customer who opens a cumulative deposit account instead of a simple fixed deposit account. Similarly, there are opportunities available in the syllabi of social studies [and] moral science."
SEBI chairman U.K. Sinha told a seminar in Chennai recently that the Central Board of Secondary Education (CBSE) had already agreed to the proposal. It's not something that can happen overnight, however. Textbooks have to be changed and the "financial education" element inserted. Before that can happen, it needs to be decided which topics the insertions will cover.
The regulators have been fighting turf wars on other fronts. The debate is expected to escalate when the financial education agendas for schools is being prepared. According to people associated with the panel on financial education, this has already started happening. The RBI wants to include more education on banks. The SEBI is pushing for lessons related to financial markets. And the insurance and pension regulators feel that they have to be equally forceful to get adequate representation for their subjects.
Once the CBSE gets going, will the individual providers of financial education to children become redundant? "It's a long way off," says Iyer. The subcommittee has suggested that a new organization -- the National Institute of Financial Education (NIFE) -- be set up under the NISM to handle all the efforts, which would likely require Pocket Money to adapt a bit. "Pocket Money is subsidized by SEBI, so it probably doesn't matter to them much, one way or the other," notes Varadachari of Money-Wizards.
"Purely based on the quality of content and the pedagogy that we follow, we think there is a place under the sun for us, regardless of what SEBI or RBI do," he adds. "We are seeing international demand for our programs. Our Singapore school program rolls out this month and there are inquiries from the Middle East and Southeast Asia as well. One possibility is that if SEBI or RBI is willing to work with us, we can share our methodology and pedagogy and they can use their reach. At the end of the day, doing the right thing is more important than who is doing it."
All of these different efforts put together are likely to cover only a small portion of schoolchildren who need to learn their financial ABCs. "Everybody must contribute to the effort," says Jayanta Nath Mukhopadhyay, dean of Globsyn Business School's global campus. "Business schools -- which are the repository of much financial knowledge -- have a role to play."
Mukhopadhyay suggests that the schools could reach out to students living in their catchment areas. "We must all teach in the villages and financial education is a crying need," he says. "It's a two-way process. We will also learn what the real India is."