Why Financial Literacy in India Needs Real Action, Not Just Campaigns

August 9, 2025 Sagun

India is a country of over 140 crore people, but did you know that only about 25% of our population is considered financially literate? At first glance, that seems like a big number in absolute terms — more than 35 crore people. But when you compare it to the global average of 35%, the gap becomes clear.

Every now and then, we hear about investor awareness drives by SEBI, mutual funds, and stock exchanges. There are seminars, webinars, workshops — all across India, often in local languages too. Still, according to a study shared in the National Stock Exchange’s (NSE) bulletin, all this effort has only led to 27% financial literacy in the country.

So, the real question is — why is financial literacy still so low, and what can we do about it?

Table of Contents

The Reality Behind the Numbers

The survey mentioned in the NSE bulletin was conducted back in 2019, well before the post-COVID financial boom. Since then, demat accounts, mutual fund folios, and trading volumes have all hit record highs.

But here’s the catch: all of this has happened without building a strong foundation in financial understanding. It’s like building a skyscraper on soft soil. No wonder India’s financial product penetration is still just 7-8%.

Urban vs. Rural Divide

The same survey showed a stark difference between urban and rural India. Cities may have more access to information and financial products, but rural areas are still lagging behind.

Gender Gap in Financial Knowledge

Another major concern is the gender gap. Women are significantly less likely to be financially literate, partly because of societal norms and partly because financial concepts are often explained in a complicated way.

Financial Education Shouldn’t Be a One-Time Event

One of the biggest problems with current financial literacy programs is that they are event-based — attend a workshop, and that’s it. But real financial education is a continuous process.

Think about it — would you trust a driver who learned to drive in one day?
Then why do we expect people to understand complex things like stocks, mutual funds, SIPs, asset allocation, and derivatives in a single 2-hour seminar?

Where’s the Assertiveness?

Financial education efforts often stop short of being assertive. They provide information but don’t give clear, actionable guidance. For example:

Day trading and derivatives are extremely risky. Still, many jump in without understanding the basics.
SEBI reports that most retail traders end up losing money, but this fact is rarely highlighted in awareness campaigns.

Why the hesitation?

Because the ecosystem thrives on trading volume. Stockbrokers, exchanges, and even mutual fund companies earn revenue from these transactions. So, there’s a conflict of interest — being too honest might hurt business.

What Needs to Change?

1. Simple, Honest Messaging

Financial jargon scares people off. Terms like “monetary policy transmission” or “interest rate differential” mean nothing to someone just starting out.

Instead, use examples from daily life:

“If RBI raises interest rates, your home loan EMI goes up. That’s because banks now have to pay more to borrow money from RBI.”

Explain it like that — and people will actually understand.

2. Start with the Basics and Build Gradually

Don’t throw the entire financial dictionary at people on day one. Begin with:

How to save money effectively
What is a bank account, FD, RD
Why investing beats just saving
Power of compounding in SIPs
Importance of emergency funds and health insurance

Then move to mutual funds, equities, debt, and risk profiles.

3. Highlight Safe First Steps

Why not promote passive investing (like index funds or ETFs) as the default starting point?
They’re:

Easy to understand
Low-cost
Less risky than active trading

But many campaigns skip this because actively managed funds bring in higher commissions.

4. Local Language and Local Relevance

Speaking in regional languages is a great start — but the content must also feel culturally relevant.

Bonus Tips for First-Time Investors

If you’re just starting your financial journey, here are 3 tips to avoid costly mistakes:

Don’t follow the crowd — Just because others are making money doesn’t mean you should rush into the same.
Avoid FOMO — Fear of Missing Out has made many people fall for stock tips on WhatsApp and Telegram. Be careful.
Keep it boring — The best investments are often not exciting. SIPs in index funds may not sound glamorous, but they work.

Final Thoughts: Time to Get Real About Money Education

In India, financial literacy isn’t just about knowing what a mutual fund is. It’s about building confidence, making informed choices, and not falling for flashy schemes.

We’ve made progress — no doubt. But we need to move from awareness to real understanding. That will take honest messaging, continuous learning, and simplified, relevant education.

Because in a country where crores of people are stepping into financial markets for the first time, we owe them better than half-truths and jargon.

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