Financial knowledge is not the problem in India, but financial attitude is

You might know a lot about finance, but that doesn't necessarily mean you have the right attitudes towards managing your money. That seems to be the message from the survey on financial literacy carried out by researchers from the Reserve Bank of India. The study, titled ‘Financial Literacy in India: Insights from a Field Survey', was published in this month's RBI Bulletin. The research studied three components of financial literacy—financial knowledge, financial behaviour and financial attitude. While the scores for the first two parameters are decent, the survey's respondents had a low score in financial attitude.

The financial knowledge tested was about basic financial concepts, such as inflation, the relationship between risk and return, portfolio diversification and about the RBI Ombudsman. The financial behaviour of those surveyed was assessed based on how they manage their household budgets, saving behaviour, managing the cost of living and evaluating options while selecting financial products.

Financial attitude, on the other hand, was measured by the response to three specific statements: 1) You tend to live for today and let tomorrow take care of itself, 2) You find it more satisfying to spend money than to save it for the long term and 3) You are prepared to risk some of your own money when saving or making an investment.

The researchers found that respondents scored 3.8 out of 5 in financial knowledge, which isn't bad at all, considering that a survey for 12 OECD countries in 2020 had a score of 4.6 out of 7. The OECD, or the Organisation for Economic Co-operation and Development is also known colloquially as the ‘rich countries' club.' Respondents in the RBI study had the lowest score in their understanding of the diversification concept. Educated and richer persons had better financial knowledge, as did those who resided in metropolises. That is hardly a surprise. Retired persons were financial savvy, perhaps because necessity forces them to be.

For financial behaviour, the researchers found the score to be 6.65 out of 9, well above the OECD score of 5.3 out of 9. With very little social security in India, people have to willy-nilly behave well financially.

The anomaly lies in financial attitudes. The average score for financial attitudes is a mere 1.97 out of a maximum of 5. Compare that to the OECD minimum score of 3 out of 5. In the RBI survey, only 25 per cent of the respondents scored 3 or more. Clearly, our financial attitudes are all wrong.

That is surprising, because behaviour is usually a result of your attitude. Surely, if your attitude towards finance is negative and reckless, your behaviour should reflect that. The OECD International Survey of Adult Financial Literacy says, ‘even if an individual has sufficient knowledge and ability to act in a financially prudent way, their attitudes will influence their decision of whether or not to act.' The RBI researchers do not say anything about the gap between attitude and behaviour.

Perhaps the clue lies in the questions being asked of respondents to gauge their financial attitudes. For instance, of course people will find it more satisfying to spend money than to save, they may prefer to live for today rather than worry about tomorrow and people may really be prepared to risk some of their money in investments. But when it comes to financial behaviour, they find that they cannot afford to do any of these things. That could be a reason for the gap between attitude and behaviour. Could it also be that having a reckless attitude towards finances may, sooner or later, affect financial behaviour as well?

The survey also shows that homemakers have little financial knowledge, but they have positive financial attitudes and good financial behaviour.

On the other hand, daily wage workers have some financial knowledge, but poor financial attitudes and behaviour. That only goes to show that, as long as you are financially constrained, financial knowledge can only get you so far.

The RBI researchers recommend, ‘FL (Financial Literacy) camps must target to enhance knowledge of female respondents and of those residing in semi-urban areas; and target attitude development for remaining respondents' groups so as to benefit the entire population in deprived areas.'

Government postpones higher TCS on overseas spends by 3 months to October 1

As per the latest clarification from the finance ministry, if a person is overseas and spends through the credit card, it would not count under LRS and therefore would not attract TCS. Further, if a person uses credit card while in India for permissible overseas transactions, then that would count under LRS and attract TCS if it exceeds Rs 7 lakh in a year.