Financial Literacy’s decisive role in decision making by Individuals


The common man perceives Indian financial markets very tough and there is a need for financial literacy. Financial literacy helps people to make informed decisions. It consists of awareness of concepts such as spending, saving, borrowing, investing, etc. Financial literacy can be used to manage personal resources efficiently. Excessive spending, living on borrowed money and deferred debt payment made earlier in life can turn out to be detrimental.

The best strategy to help individuals manage their limited financial resources is imparting them financial education. The Organisation for Economic Corporation and Development (OEDC) has defined financial education as the process by which financial consumers/investors improve their understanding of financial products and concepts. According to OECD economic education, assist people to improve their financial well-being and protection. It is to be noted how financial literacy gained importance in these times due to the emergence of new financial products and the complexity of financial markets. This has resulted in the intersection of financial inclusion and financial development.

Financial Inclusion

The government’s vision is inclusive growth, to accommodate weaker sections and the low-income groups in the market. Such a step has resulted in the people getting literate to understand the banking and financial concepts and terminology. The RBI has sternly looked into it by associating with NGOs, self- help groups (SHGS), and commercial banks. The individuals should be advised so as to prevent unmanageable debt levels. For financial and credit literacy, counseling centers have inculcated saving habits among people. This will help them to be aware of financial products. There have been moves by SEBI to educate investors by organizing seminars in which study material is given away to educate investors. Stock exchanges, mutual funds association and depositories have a role to play on this score. The progress needs to be seen in the technology sector as well, and with the emergence of mobile phones, the internet and ATMs led to a change in the way financial businesses are conducted.

Financial Development

For the delivery of services, financial illiteracy has been an impediment. In the case of individuals who are unfamiliar with products, they will not choose to get it. Their knowledge about interest rates, exchange rates, etc has helped them to come up with decision making in the area of risk management strategies also, this is helpful.

The financial literacy has empowered the common person

Financial literacy will improve markets qualitatively. Individuals can enjoy a life of dignity. The households have inclined to possess a retirement plan and savings. Knowledge is the key to financial decision making. A strong correlation exists between the extent of an individual’s education and that individual’s investment vision. With this correlation, a higher investment-related income can be achieved. Personal credit in mismanagement will stay at a lower level. 


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