Decoding India's Financial Literacy and Propensity of Risk
India, the land of vibrant culture, bustling markets, and a billion dreams, is also a hotbed for a unique game of financial roulette. In my upbringing, financial literacy was not considered an essential set of skills that needed to be taught. Any economy needs financial literacy as its foundation; it's like the seasoning that gives your financial choices more taste. In India, where stock markets resemble roller coasters and chaiwalas become billionaires, knowing the fundamentals of money is not only a need but also a matter of choice. You'll hear me advocate for making personal finance a required subject in the classroom practically every time we talk about education, ideally starting in the ninth grade or even earlier.
Studies have demonstrated that the Big Five features significantly and favorably impact financial decision-making, financial literacy, financial knowledge, financial attitudes, and financial behaviors. Financial decisions are influenced by an individual's behavior and ultimately come down to nature and nurture, just like everything else in life. Financial attitude is directly related to risk propensity and decisions, positively influencing risk propensity.
The way someone handles their money reveals their risk tolerance and level of financial stability. Regarding millennials, most of them have limited financial literacy. Rising financial influencers are raising public knowledge of the value of saving, investing, prudent spending practices, stock markets, and other related topics.
Everyone has a different relationship with money. Some have a great sense of satisfaction when they spend, and some when they invest. Some believe that money is made to be spent and ends up hoarding; others believe it is an asset used to create generational wealth. For some, it is a motivating factor to do more; for others, what they have is enough. A parent’s relationship with money and their actions also play a role in how a child forms his or her value and belief system of money, which is reflected in their adulthood. Gender also plays a role in monetary decision-making and actions.
Let's shift our focus a bit to the risk propensity, which is the fragile process of making financial decisions. In a country where every investment is a leap of faith and every loan is a gamble, understanding risk is like performing without a safety net. In India, risk-taking is not just a skill; it’s a way of life. But like any circus act, the key is to know when to take the plunge and when to hold back—a balancing act that requires both skill and intuition. Better financial decision-making and increased financial stability are frequently linked to higher levels of financial literacy.
In India, risk-taking is almost a national sport. From investing in gold during weddings to betting on cricket matches, risk is ingrained in the Indian psyche. But when it comes to financial investments, striking the right balance between risk and reward is crucial. It’s like walking a tightrope between financial success and a potential “paisa vasool” moment.
Imagine a young professional armed with a smartphone and a dream, diving headfirst into the world of investments. Excited by the promise of high returns, our hero forgets the cardinal rule of investing: “Never invest more than you can afford to lose” or “Never put all your eggs in one basket.”. Cue the market crash, and our protagonist learns a valuable lesson in risk management the hard way. As they say, every financial misstep is a chance to learn and grow.
Due to improper judgments made in the complex financial markets, people with little financial literacy end up making bad financial decisions that are detrimental to society as a whole as well as to themselves. Being able to make wise judgments about investments and wealth management is the ultimate goal of financial literacy.
Recommended by LinkedIn
Let's now examine the impacts of demographics in detail.
Because of its long history of trade and business, North India, with its rich cultural legacy and entrepreneurial spirit, may show a higher risk propensity in some sectors. This could lead to a higher tolerance for financial risks.
However, South India, which is renowned for emphasizing education, stability, and traditional values, could take a cautious stance when it comes to money concerns, emphasizing savings and safe/conservative investments. A lower-risk propensity might arise from this.
Given its urbanization and commercial activity, financial literacy programs in North India could be more varied and focused. However, because of its robust educational system, the South may concentrate on more comprehensive financial literacy programs that highlight long-term financial planning, which might sway investors' risk aversion towards more cautious investing approaches.
These are barely the two most important observations. It is crucial to remember that, while these are broad generalizations drawn from studies and observations, there may be notable regional variances as well as individual differences. To fully capture the complicated link between risk and financial literacy in North vs. South India, thorough research would need extensive surveys, interviews, and data analysis.
**The article does not intend to hurt the sentiments of the general public but rather establishes a demographic and cultural difference on the topic.
References: