If corporate governance was the big, burning issue after the global corporate scandals at the turn of the century, financial literacy is the burning issue today, when the world is recovering from an economic crisis caused by speculative excess and greed. It is ironical that we are focusing on financial literacy at a time when the gluttonous self-indulgence of a bunch of overpaid money managers has created a mammoth financial crisis that bankrupted nations and threatened to throw the world into a recession. We avoided a full-blown catastrophe, because governments pumped taxpayers’ money into failed finance companies to keep them afloat. Maybe this is what has triggered the need to be financially literate and to understand how money works at the individual level or when it is in the hands of companies, financial experts or even governments.
As journalists, we realise that experts can be fooled by the smart spiel of a new investment product. What else can explain the losses of top financial experts in their investment in Osian Art Fund? Simultaneously, we notice how ignorant people are about precautions to be taken when they use credit and debit cards, take a loan or do electronic banking, shopping or trading. Most Indians are clueless about the concept of individual credit histories. And there is very low awareness about insurance, mutual funds and a combination of the two. Wills and transmission of assets is another area riddled with confusion because of obscure rules that are different for each state.
Over the past two decades, we have understood that improving financial literacy is not about posting detailed FAQs (frequently asked questions) on websites or advertising campaigns or talk-fests like financial literacy seminars. And that mere media exposure does not necessarily lead to the resolution of even simple problems. A good example is the recent action by the Securities and Exchange Board of India (SEBI) and the National Stock Exchange to reform the Power of Attorney granted by investors to their brokers. It took a stock market crash and soaring complaints to push the regulators to take corrective action.
We believe that decades of battering (through unresolved grievances) and discomfort with automated systems, which are loaded in favour of service providers instead of investors, have driven investors away from the markets. It was a proud moment for us when paperless trading in the secondary markets, mandated by SEBI, quickly put the Indian stock market on par with the best in the world. It has taken a decade after that for the slow realisation that this also drove away retail investors and India’s investor population is down to just around eight million. So market expansion and financial inclusion have become as much of a national imperative as financial literacy; we see regulators increasingly focused on this effort. But this is not enough. After two decades of watching from the sidelines, except for using our reach to resolve individual grievances, we have recognised that the solution lies in a combination of efforts and activities. Our answer is Moneylife Foundation, a not-for-profit organisation that is dedicated to the cause of the investor and consumer of financial services.
But why should a media company go in that direction? To us, it is the most natural next step. Our focus has been to bring accurate, unvarnished information to the people and help them along the path of financial awareness. Our first initiative is the Moneylife Knowledge Centre where a reading room with our terrific collection of books on finance will be open to all. The Centre would aim at creating interest in financial products and protect investors and consumers through information, counselling and grievance redressal. We will also hold intensive workshops and provide counselling facilities to bridge the strange distance that exists between financial service providers and their own customers.
Sucheta Dalal is the Consulting Editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal @yahoo.com