k c chakrabarty : exploring the challenge of financial education across emerging economies keynote address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the visa - ft financial literacy forum series, mumbai, 5 june 2012. * * * assistance provided by smt. sushma vij and ms geeta nair in preparation of this address is gratefully acknowledged mr. james crabtree, chief mumbai correspondent, financial times, mr. uttam nayak, group country manager, south asia, visa inc, mr. thomas davenport, director, south asia, ifc, ms. nirupama soundararajan, additional director, ficci, ms. jayshree vyas, managing director, sewa bank, distinguished guests, members of the press, ladies and gentlemen. it is my pleasure to be present here today to address this august gathering to deliberate on the challenge of financial education across emerging economies. financial literacy, together with financial inclusion and consumer protection form a triad which has a vital bearing on the stability of the financial system. financial literacy is one of the major challenges facing countries across the globe, irrespective of their level of economic development and has been receiving significant attention from policy makers worldwide. i would, therefore, like to congratulate financial times and visa for taking initiative by organizing this financial literacy forum and bringing together thinkers, policy makers and market practitioners to deliberate on how to enhance the effectiveness of our financial literacy efforts. when we talk about financial literacy, we are usually referring to a set of skills that allow people to manage their money wisely along with some understanding of essential financial concepts, not least an appreciation of the trade - off between risk and return. financial literacy is not just about markets and investing, but also savings, budgeting, financial planning, basics of banking and most importantly, about being “ financially smart ”. to understand financial planning, a person should be financially literate and be able to understand the importance of preparing household budgets, cash - flow management and asset allocation to meet financial goals. hence, the foundation of financial literacy needs to be laid by inculcating financial prudence through education at the school level. is financial literacy required only in emerging and developing economies? i would say that financial literacy is essential for both developed nations and emerging economies. however, we need to bear in mind that the focus of financial literacy initiatives would vary depending on the economic profile of the target population. for developed countries

, as it will help them in expanding their business operations to newer segments of the population. globally, it is observed that commerce for the poor is more viable than commerce for the rich. financial inclusion needs to be pursued in a commercially viable manner, which is possible only if the entire suite of products including credit products, remittance services and deposit products are offered to customers. the commercial viability of financial inclusion efforts is essential for ensuring long term sustainability and scaling up of this business. the failure of financial intermediaries to ensure effective implementation of financial inclusion efforts as a viable business model indicates the lack of basic financial literacy on the part of these financial intermediaries. institutional framework in india one critical advantage that india has in its financial literacy and financial inclusion efforts is the strong institutional framework in place for guiding its implementation. we have the financial stability & development council ( fsdc ) headed by the union finance minister which, inter alia, has been mandated to look after financial inclusion and literacy efforts. with heads of all financial sector regulatory authorities being part of the fsdc, it seeks to ensure inter - regulatory co - operation for attaining the stated goals. fsdc has constituted a sub - committee to focus solely on financial inclusion and literacy. in our multi agency approach, reserve bank has taken a lead role in spreading financial inclusion and financial literacy, both in terms of creating an enabling policy environment and providing institutional support. one of the important tasks that the fsdc sub - committee has taken up is to formulate the national financial literacy strategy document with the following objectives. ( i ) create awareness and educate consumers on access to financial services, availability of various types of products and their features. ( ii ) change attitudes to translate knowledge into behaviour. ( iii ) make consumers understand their rights and responsibilities as clients of financial services. financial literacy – ideally start early in schools it is well recognized that to be effective, financial literacy initiatives should ideally commence at school level although, even at a later stage adult education would provide substantial benefits. financial education at the school level would involve teaching the basics concepts for laying a strong foundation. the groundwork for this sort of conceptual understanding is best laid in a formal educational setting. the reason why it is important to teach financial education in schools is also due to its multiplier effect on the society as they would be in the bis central bankers ’ speeches best position to act as ambassadors for the spread of financial education in their surrounding environment. in india, therefore