Financial literacy in India very low, says survey

livemint:Saurabkumar :Wed, Jul 31 2013. 05 56 PM IST

While inflation has hit savings, young Indians seem to be more financially proficient

While we have become marginally better at saving and planning for the unexpected and retirement, basic money management still remains a weak point, shows a recent survey. In terms of overall financial literacy, India is at the bottom among 16 countries in the Asia-pacific region with 59 index points, according to the annual MasterCard’s index for financial literacy. Only Japan fared worse with 57 points.

The index is based on a survey conducted between April 2013 and May 2013 with 7,756 respondents aged 18-64 years.

The survey polled consumers on three aspects—basic money management (50% weight), financial planning (30% weight) and investment (20% weight)—to arrive at the overall financial literacy index. On individual parameters, India scored 50 index points in basic money management, which was lowest among 16 countries. With respect to financial planning, which involves savings and planning for the unexpected and retirement, India showed improvement from the last round of survey and scored 76 index points and for investments it scored 58, one index point lower compared with last year.

The report states that for Indians, “the lack of ability to keep up with bills, set money aside for big item purchases and to pay off credit cards fully could be due to a lack of surplus cash, resulting from the fact that income levels are not high enough to cover expenses”. According to Desmond Choong, an external analyst who works with MasterCard on indices and surveys, this can be attributed to inflation. The Consumer Price Index-based inflation has been around 9-10% for the last two years.

Interestingly, the younger lot seems to be slightly more financially proficient. The financial literacy scores for Indians aged 30 and above was 59 compared with 61 for those under 30 years of age. This was an exception to all the other Asia-Pacific countries where the older cohort had clearly better financial literacy scores than the younger cohort except for Indonesia where it was almost a tie between the two segments.

However, given the small sample size and locations chosen for the survey, it may not be a true reflection of the things on ground. “The sample is not too big and India is a large country with diverse lifestyle approaches. So I am not sure how far will this be true for pan-India,” says Ranjeet S. Mudholkar, vice-chairman and chief executive officer, Financial Planning Standards Board India.

The survey was conducted with respondents at the urban level, so the results are particularly for urban Indians “but may to a lesser extent reflect the situation as well for rural India”, says Choong.

Mudholkar, however, says that the survey can give a good idea from a country on country perspective. For instance, Hong Kong and Singapore are comparable in terms of per capita income, population and purchasing power parity but India operates on a very different scale.

Nevertheless, the survey does show lack of penetration of financial products and literacy in India compared with other nations included in the survey, which needs to be taken note of.