Streamlining financial education in rural areas: context & role of the state
“When addition becomes the norm, financial education becomes critical”
Financial education plays a pivotal role in equipping individuals with the knowledge and skills necessary to make informed economic decisions, manage personal finances, and plan for a secure future. In urban areas of India, despite the country’s rapid economic growth, there exists a conspicuous gap in financial literacy among the current generation; a generation that is often restless and exhibits extreme levels of attention deficiency, cryptocurrencies, trading and gambling become commonplace. As dinner table discussions move from saving to portfolios to excessive trading, the societal discourse moves to embrace imbalance. This deficiency is particularly concerning, as urban centers serve as hubs of economic activity and employment opportunities. The lack of comprehensive financial education perpetuates financial vulnerability, impeding individuals’ ability to navigate complex financial systems, make sound investment choices, and safeguard against economic uncertainties. Financial education, as imperative as it is in urban areas, becomes even more critical in the context of rural India, where the majority of the country’s population resides and relies primarily on agriculture and related livelihoods. In rural regions, the dearth of financial literacy is pronounced, significantly constraining the economic progress and well-being of the population. With limited access to formal financial services and a heavy reliance on traditional and informal systems, rural residents often lack exposure to modern financial practices. This deficiency perpetuates cycles of financial vulnerability, leaving many exposed to exploitative lending practices and inadequate savings. Bridging this educational gap is an essential component of rural development. It not only empowers individuals to leverage available financial services for agricultural investments and income generation but also enables them to manage risks effectively and accumulate wealth over time. It’s a fundamental building block for economic inclusivity, the reduction of poverty, and achieving more equitable growth across the rural landscape of India.
A recent RBI survey (https://www.business-standard.com/article/current-affairs/financial-literacy-poor-across-urban-rural-population-rbi-survey-122122600711_1.html) shows that the digital banking awareness of both the rural and urban areas stood at less than 50%.
A 2019 article about overall financial literacy paints an even more grim picture — nearly 76% of the population does not understand basic financial concepts. (https://www.outlookmoney.com/technology/financial-literacy-in-rural-areas-apprehensions-attached-with-e-wallets-and-net-banking-2909)
Suicides due to induced financial negligence
A couple of issues plaguing the rural areas, as observed by a few friends who work closely with farmers in the agricultural sector(in their own words):
- Over-expenditure on alcohol and substances- blowing through their allowances- how are they going to maintain a family.
- Heavy loan undertaking in multiple circles, and stress to repay that loan with minimal sources of income.
The two issues that are described above can be rooted back to the poor inculcation of financial education- when one does not know how to adapt to changing financial circumstances, or visualize the dire outcomes of improper budgeting and carefree expenditure.
A Time of India article, (https://timesofindia.indiatimes.com/readersblog/findustry-insights/farmer-suicides-in-india-26499/) summarizes the above in the very first statement:
“They say farmers are born in debt, live in debt and die in debt.”
According to statistics, in 2018, close to 8% of the nationwide suicides were farmers, while the reasons of suicides were debt, low prices for their produce, family responsibilities, increased cost of cultivation and crop failure. Something that screams out loud is that the problem of livelihood and acute stresses in finance lead to these deaths. While intervening across and solving all the problems might be far fetched, the state can target a strategic approach to mitigate a few of the problems.
A substantial proportion of the agrarian populace is increasingly resorting to the acquisition of elevated debt levels, often burdened by exorbitant interest rates, while frequently lacking adequate collateral to secure these loans. This predicament is particularly acute among smallholding farmers, as an overwhelming majority, approximately 70%, possess land holdings amounting to less than two hectares. In their pursuit to alleviate the burdensome debt obligations, private lenders, albeit informal, often exert pressure on these farmers to liquidate their produce at prices falling notably below prevailing market rates. In contrast, the institutional avenues, such as banks, while ostensibly available for credit provisioning, are beset by issues of complexity, inefficiency, and limited outreach. Consequently, the majority of farmers tend to eschew engagement with formal banking institutions, a predilection that further compounds their dependency on informal sources of credit.(Farmer Suicides in India (indiatimes.com)).
What has the state done to improve financial education?
.Lets take a look at what the state has done in the past 5 years to improve financial awareness in rural areas:
1.Aadhar-enabled Payment Systems (AePS): Reduces reliance on pure cash, Rural population’s access to banking invariably gives access to financial advisors, the probability of informed decisions increase. Peer support, Micro ATM systems, betters understanding of saving, budgeting and personal finance mgmt. (Unlocking financial inclusion: AEPS emerges as UPI for rural India — SME News | The Financial Express) If the payment mechanism is smooth, the increased frequency of transactions will lead to a better, more well connected network.
2.KFRC (KARNATAKA FARMERS RESOURCE CENTRE) Bagalkot is set up by the State Level Bankers Committee in Karnataka to educate farmers on resource management, credit absorption capacities, financial inclusion etc. Goal is reduce number of suicides and distress due to lack of financial responsibility, and help support them in decision making. The real impact of the KFRC is trickier to measure.
3.Financial Literacy Centers (FLCs): The Reserve Bank of India (RBI) has set up FLCs across various districts in India, including rural areas. These centers offer financial literacy and counseling services to rural individuals
What can the state do to improve financial literacy?
1. Improving financial literacy among women: Educate the women in rural areas as they run households. The Government is making strides here through various mediums (Pradhan Mantri Jan-Dhan Yojana).
“Only 27% of Indian adults — and 24% of women — meet the minimum level of financial literacy as defined by the Reserve Bank of India.”
2.Enhancing the efficacy of mentorship programs and self-help group (SHG) initiatives in rural locales is a multifaceted endeavor that warrants meticulous consideration. Collaborative endeavors between governmental bodies and non-governmental organizations (NGOs) offer a promising avenue for cultivating more robust support frameworks dedicated to the propagation of financial literacy. Such partnerships, when thoughtfully crafted and systematically implemented, have the potential to transcend the mere dissemination of theoretical financial knowledge. They can evolve into dynamic platforms for the practical application of acquired financial acumen, thereby providing rural inhabitants with not only the cognitive foundations but also the functional skills requisite for informed financial decision-making and management. This approach entails a deeper and more engaging involvement in the realm of financial literacy, resonating with the imperative need to empower rural populations economically and enhance their financial well-being.
3.Collaborative endeavors with Public Sector Undertakings (PSUs) to furnish financial support offer a compelling avenue for addressing the current dynamics of mentorship in the rural context. It is apparent that while the government has undertaken significant efforts in disseminating financial literacy to farmers and the rural populace, the effectiveness of such mentorship endeavors may benefit from a more nuanced examination. Often, imparting knowledge and information is not the culmination of the mentorship process, as the subsequent decision-making landscape can be markedly intricate and nuanced. The rural demographic, while gaining exposure to financial principles and strategies, may still grapple with the monumental task of making pivotal decisions that have far-reaching consequences for their economic sustenance and well-being.
This is where partnerships with PSUs assume a pivotal role. These collaborations can encompass the provision of financial resources and, perhaps more critically, the dissemination of comprehensive, context-specific guidance. Such mentorship initiatives can extend beyond the mere impartation of theoretical financial knowledge to encompass the cultivation of decision-making skills rooted in financial prudence. By interlinking theoretical underpinnings with practical case scenarios and real-world implications, these partnerships can empower rural inhabitants to not only comprehend financial concepts but also effectively navigate the complex landscape of critical financial choices.
The government, while playing an indispensable role in instilling financial awareness, can thus collaborate with PSUs to bolster mentorship programs that holistically encompass the cognitive and practical dimensions of financial literacy. In doing so, mentorship acquires a multifaceted character that is oriented towards equipping individuals with the requisite proficiency to make judicious, informed decisions that align with their long-term interests. Consequently, it is conceivable that this collaborative approach may serve as an instrumental bridge between financial literacy and pragmatic financial efficacy, thereby amplifying the socio-economic resilience and sustainability of rural populations.. (Need for
financial literacy amongst women in rural areas — Money News | The Financial Express)
Financial literacy in rural India is on an encouraging trajectory. Initiatives by public and private sectors, along with the advent of digital financial platforms, are expanding access to financial services. Collaborative efforts between various stakeholders are shifting the focus toward practical, applicable knowledge. The result is an increasing sense of optimism that rural populations can make more informed financial decisions in the future.
