When people do not have the basic knowledge of numeracy, risk diversification, inflation and compound interest, there is always a fare chance of them to be miss sold or them to miss handle financial products .Ridiculously, close to 76% Indian adults do not adequately understand key financial concepts.
The survey was conducted in 2014 by Gallup (an American research-based, global performance-management consulting company) for the survey; interviews of more than 150,000 adults across over 140 countries were conducted. Individuals were tested on their knowledge of four basic financial concepts: numeracy, risk diversification, inflation, and compound interest (savings and debt). A person was defined as financially literate when she correctly answered at least three out of the four concepts.
Of the questions asked, only 14% of Indian adults answered the one on risk diversification correctly, and just 51% understood compound interest. On the other hand, 56% answered the question on inflation correctly. What is interesting is that about 39% of adults who have a formal loan are financially literate, while 27% of formal borrowers are not financially literate. With regards to the participants’ knowledge of financial products, a mere 14% of Indian adults said they saved with a formal financial institution. Countries with the highest financial literacy rates include Australia, Canada, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden, and the UK, where about 65% or more of adults are financially literate There is a even a wider gap between Indian men and women with 73% of men and 80% of women not being financially literate compare to 65% and 70% worldwide.
It is therefore very important for the Indian investors to have a basic knowledge on financial issues that are common to every financial product. This will therefore help them to understand, compare and maintain their financial assets. This however doesn’t mean that they could invest by themselves or need not take any advisory services but it would abstain the service providers or advisors to miss lead or mss represent.