MEASURING FINANCIAL LITERACY: CONCEPTUAL STUDY
Sudindra V R
Unlike traditional roles played by governments and employers in managing investments on behalf of individual significantly transformed in recent past due to change in social structure across the world. It is responsibility of individuals in managing their own finance to secure their financial future. In the complex financial environment, it is imperative that individuals develop nuanced understanding of world of finance to meet their financial goals and needs. It is observed that most of the individuals under-saved, fail to invest wisely and continued to be overburdened with loans/advances.
2. CONCEPT OF FINANCIAL LITERACY:
OECD- Organization of Economic Co-operation and Development, defines financial literacy is a combination of awareness, knowledge, skills , attitude and behaviors necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.
3. COMPONENTS OF MEASURING FINANCIAL LITERACY:
Measuring financial literacy requires a clear understanding of financial literacy concepts and application of appropriate evaluation tools.
Major components of financial literacy includes:
Ø Savings/borrowings: basic understanding of savings alternatives, different types of savings account, borrowing procedures, debt literacy and ability to plan for future.
Ø Personal budgeting:understanding of personal budgeting, budget balance, taxation impact on income, disposable income and estimation using appropriate measures.
Ø Economic issues:understanding of economic situation, economic ratio’s, knowledge of economic terms and etc.
Ø Financial concepts:understanding of time value of money, risk and returns, risk profiling, timing in investments and other related concepts.
Ø Financial services:knowledge of financial products, services, mechanism of card services, insurance, broking services, online services and other financial services.
Ø Investing:understanding of investment opportunities, risk and rewards and other investment related risks.