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THE ROLE PLAYED BY FINANCIAL LITERACY IN FINANCIAL INCLUSION AND CLIENT PROTECTION

Financial literacy training improves financial knowledge but has a lower impact on financial behaviors,

Ensuring competent, timely, and unrestrained access to public goods and services is the quintessence of an open and efficient society. As financial products and services, especially banking services, are considered public goods and services, making these services available to the entire population without any type of discrimination is the foremost need of the inclusive system.

Exclusion broadly can be said of an individual deprived of having any facility to earn an income, safeguard the same, transfer or invest for a further benefit, protect from risks, etc. Inclusion is to help him acquire all these facilities. 

Exclusions are of three types: 

(a) Those that do not have any access to formal or informal financial systems 

(b) Those that have, but limited access to financial services and banks, and 

(c) those that find a mismatch in the availability of products and service and their requirements

Financial Inclusion (FI) aims at providing access to comprehensive financial services at affordable cost.

Financial Inclusion (FI) aims at providing access to comprehensive financial services at affordable cost.

In most cases, the rural and urban poor, underprivileged/disadvantaged, illiterates, those with no / low incomes, women, children, migrants, and disabled are those who are excluded. 

Financial Inclusion

Financial Inclusion (FI) aims at providing access to comprehensive financial services at affordable cost. 

It can be sustainable only when the target population makes use of such services on a sustained basis. The often neglected poor also require a range of financial services, such as opportunities to earn, safeguard the hard-earned income, or credit to support them in maintaining at least bare minimum levels of sustenance through the year, risk mitigating services like insurance and transferring their earnings to their near and dear who may be staying at other places. It has been often discussed and agreed that one of the critical deprivations in acquiring wealth by poor households is the absence or dearth of the apt and appropriate type of financial services. And the biggest deprivation is a lack of knowledge of finance. 

It is believed that as much as money or finance, its products and services are needed to be part of financial inclusion, and so is financial literacy. If a person does not understand what s/he needs money for or how to use it, to what purpose are the products and services for that person? 

One of the definitions of Financial Literacy is the ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It includes the ability to understand financial choices, plan for the future, spend wisely, and manage the challenges associated with life events such as job loss, saving for retirement, or paying for a child’s education.

Financial Education is the process of building knowledge, skills, and attitudes to become financially literate, introducing people to good money management practices with respect to earning, spending, saving, borrowing, and investing. The role of financial education is to enable people to shift from reactive to proactive decision-making and work toward fulfilling their financial goals. 

Financial Education is the process of building knowledge, skills, and attitudes

Financial Education is the process of building knowledge, skills, and attitudes.

Financial Capability

Financial Capability is the ability and opportunity to use the knowledge and skills learned in financial literacy and education with technology by the individual to utilize the spectrum of entities of the financial system thus enabling total financial inclusion leading to Consumer empowerment and protection.

Thus, building financial capability becomes a journey– the combination of knowledge, skills, and attitudes with the opportunities to apply them – require input from multiple sources including those that literate and educate the consumer and those that sell the products.

Having identified the need for Financial Literacy not only for the underprivileged but also for the trainer stakeholders, a full package of FL content and related issues are to be addressed and the reach of the programs and impacts are to be measured.

Financial literacy could be imparted either at the local/regional level or at specialized centers like Financial Literacy and Credit Counselling Centers (FLCCs) or through ICT kiosks. Likewise, it should be decided whether FL needs to be imparted separately like academic courses or on the job.

Such comprehensive Financial Literacy can give the capacity to improve one’s own financial status and well-being by taking informed decisions in creating household budgets, initiating savings plans, managing debt, preparing ahead of time for life cycle needs, and dealing with unexpected emergencies without assuming the burden of unnecessary debt.

While in developing countries financial literacy is targeting the poor and disadvantaged, in the so-called developed countries the targets could vary.

 

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