Newsletter Article - Measuring Financial Literacy
http://www.developmentoutlook.org/2012/07/newsletter-article-measuring-financial.html
Author: Parul Agarwal
The case of little response from
the target population towards both the conventional and innovative financial
products in rural areas has received a lot of global attention. It has been
suggested that low literacy levels and, more importantly, the lack of financial
awareness are responsible for this phenomenon. In order to address this issue,
numerous financial literacy training programmes have been designed, tested, and
implemented using various methods and technological setups. Significant
research has also been done to evaluate the effectiveness of these training programmes
but their contrasting and inconclusive results are hardly of any use to the
policymakers. All this muddled up landscape of financial literacy can be attributed
to the lack of a universal definition of the term, making it difficult to tag
an individual as “Financially Literate”. Although the need and importance of
financial education has been acknowledged globally, there exists no benchmark
to measure the success of efforts that are put in to achieve it.
Each of the implementing agencies
that are working in this realm of financial literacy develops the training
programme as per its own customized definition of the concept. Some focus on
savings and financial planning, others also include numeracy, banking or borrowing
practices to the list. Customization is required but it ought to be done as per
the actual need of the target community and not according to implementer’s
perception about it. Although customization is necessary, it ought to be as per
the need of target community and not as per implementer’s perception about
financial literacy.
Clubbing all the assumed essential
components together, we attempted to develop a tool to measure perceived
financial knowledge & capability and comfort with basic formal
financial services (financial literacy) of 397 people across nine
states of the country. What follows are the findings from the first part of
data collection that was done for the purpose i.e. some findings on the
self-reported financial knowledge and capability of people who might not have obtained
a formal financial literacy training. Graphs 1.1 and 1.2 summarize these.
As depicted by graph 1.1, people
in Maharashtra, Tamil Nadu, Gujarat and Orissa rate their knowledge of ‘credit
options in the neighbourhood’ the highest. People in rural Karnataka report that
they know very little about insurance, banking products, and credit options
available to them and do not know at all about the complex financial terms like
equity investment. Overall, people think that they are aware of the credit
options available to them. With this information, if an organization were to
develop a training programme, it should focus on generating awareness of
insurance programs more than that of credit options and banking products.. The
programme should be designed in a manner that it focuses more on some aspects
in some parts of some states as per the need assessment that can be done this
way.
Graph 1.2 shows that people from
Tamil Nadu who were interviewed are most confident about their financial
capability. Also noted is that there is little confidence regarding unexpected
financial shocks, indicating a need for guidance regarding preparing for the
future and saving for emergency. Likewise, there should be counselling regarding
money management for those not confident about their families’ financial
stability.
Given this level of variation,
need of the sector is to clearly define financial literacy, at least the goals
of such a programme so that it can be designed effectively. After this is done,
the onus lies with the implementing agencies to categorize the target community
based on the need assessment exercise that they ought to conduct (may be
similar to the one mentioned above) and then design and provide the required
customized intervention.
the more we fail in practice the more we theorize or shall I say over theorize...
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