In the seminar ‘Developing Skills in Citizens’ organised by the Assocham Goa Empowerment Council, in collaboration with Goa State Urban Development Agency (GSUDA) focus was given to empower youth and women through financial literacy, inculcate saving and investing habits, apprise them about financial frauds, and encourage economic independence. Financial literacy, inclusion, and management are not just supplementary skills but essential life competencies.
Anwar Haque, the trainer, elaborated on the need to develop skills in citizens – especially those related to financial literacy. He stressed on few points.
- Earn the money: Either yourself, as the breadwinner or collectively, as the family.
- Savings and investments: Cultivate the habit of saving and make informed decisions about where to invest your money productively.
- Budgeting: Teaching families to plan expenditures and manage incomes effectively.
n Digital financial tools: Encouraging people to utilise technology for seamless transactions and bookkeeping.
While investing your money, it’s also important to understand the real value of money. The real value of money is the purchasing price adjusted for inflation and is a more effective indicator of the actual purchasing power of goods and services. For example, if you invest in a bank and get a 7% rate of return, and the inflation rate is 7%, then the effective rate of return is ‘nil’. However, if the interest rate you earn is 10%, then the effective incremental earning is 3%. The real rate of return is always adjusted for inflation, rendering instruments like savings accounts, which give a very low rate of interest, an ineffective investment avenue. Also important is taking into account the time frame within which you want to invest your money- long term or short term, depending upon your financial requirements of old age, marriage of kids, etc.
Another concept worth understanding is the power of compounding. Compounding is the process of earning interest on your investment and the interest you have already earned. How compounding works is simple. Suppose you invest Rs 1,00,000 at the rate of 8%. Your investment will fetch a return of Rs 8000 in the first year. Instead of withdrawing it, you reinvest it at Rs 108000, and the return would now be Rs 8640. As this process continues, your money multiplies, significantly increasing your returns on investment and giving you exponential growth.
Also important is estimating how much debt obligation you can take and the prudent bifurcation of productive and unproductive loans. If you take a loan for business at a rate of, say, 9% and invest it in your business, where you earn a return of 15%, this is a productive loan. However, when you take a loan for the marriage of a child, on which you earn no returns financially, it’s an unproductive loan. Financial prudence entails striking a balance between essential and non-essential loans. Also, there is a fundamental difference between investing and saving – investing is long-term while saving is short-term. There are many investment options like FDs in banks, SIPs, mutual funds, derivatives, etc, but you must be mindful of the instrument’s inflation-adjusted return.
The speaker also elaborated on the benefits of entrepreneurship for women and youth as a means of self-employment. Today, there are a lot of schemes and grants like loans under Pradhan Mantri Mudra Yojana, where a person can quickly get a collateral-free loan of up to 10 lakh for a small or micro-enterprise – which is generally not refused unless your credit score is very poor. However, it’s necessary to have the acumen and risk appetite to do business. While just 3-4% of India’s population are employed in government jobs, most of the remaining population are self-employed, working in private enterprises or entrepreneurs in their own right.
Lastly, he touched on financial inclusion, where everyone can access financial products and services. Currently, it is observed that people in urban areas are aware of and apply for govt schemes and grants; however, in rural areas, there is poor awareness, resulting in skewed area-wise disbursement of loans.
Today, there’s also an increasing focus on microfinance, which provides financial services to low-income individuals and those who are excluded from traditional banking channels. India has already made remarkable strides in financial inclusion through transformative initiatives such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) that has brought millions into the formal financial system, many for the first time, with over 50 crore bank accounts being opened.
As we work towards the vision of Vikasit Bharat 2047, it’s crucial to commit towards a financially literate and empowered India and pave the way for a brighter, more economically inclusive India.
[The writer is State President at Laghu Udyog Bharati (Goa), Assocham (Goa) Women Empowerment Chair and a member of the GCCI Managing Committee]
