Wednesday, July 25, 2007

Impact of Financial Literacy on Indian Economy

I am trying to understand the impact of financial literacy levels on the Indian Economy. Let me elaborate by giving some examples of financial illiteracy:

- There are only 5-6 million Mutual Funds subscribers compared to
approx 150 million Insurance subscribers
- Insurance in India is looked as an instrument of tax arbitrage and
an investment product rather than an insurance product.
- Susan Thomas mentions, " In 2004, there was a flow of Rs.60,000
crore of premium income going into the insurance industry. Of this, as
as Rs.6,000 crore, or roughly 10%,went back to sales agents. ".
- Equities give the best returns and you are putting your money in a
professionally managed corporate organisation. Compare this with your
insurance products which give much lesser returns and your money is
in the Government which is inefficient with your money, to say the least.
- The total AUM under Mutual Funds is about Rs 3.5 lakh crores while
LIC alone manages funds worth more than Rs 6 lakh crore

My point is that a more literate populace would buy better financial
products leading to better utilisation of the money. Things like better
saving, improved efficiency of the money in turn might have some effect on
the Economy.

How do we do it? Internet is a powerful medium and I saw these sites by the Australian & USA Governments which are very useful.

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