India has produced several world-class corporate leaders, technocrats, economists and academicians. The large number of Indians holding key positions across the world is testimony to the fact that India has some of the finest schools and colleges in the world. At the same time, our education system needs a revamp. The purpose of education is to prepare a child for the future, but the curriculum followed in schools and colleges is not aligned to the requirements of the real world.
Indian students learn to solve complex math problems, develop innovative technologies and discover new medicines. They also learn about economics, commerce, history, civics and geography. But nobody teaches them the difference between a debit card and a credit card! Or, what to watch out for when taking a loan and how to safely conduct an online transaction without falling prey to phishers. They have no idea of mutual funds, stocks and insurance plans.
High on qualification, low on financial literacy
The end results are professionals who earn well but score low on financial literacy. When these fresh graduates enter the workforce, they are sitting ducks for fraudsters and unscrupulous distributors. Keep in mind that numerical ability is not financial literacy. Even engineers from IITs and management grads from top B-schools have no clue about how to manage their money. These new income earners learn about finance the hard way when they revolve their credit card balances at prohibitively high rates or get saddled with costly home loans or lose money in risky investments.
Is there a way to avoid all this? In most developed countries, financial literacy is part of the school curriculum. Our own New Education Policy recognises financial literacy as a critical life skill and has included it in the adult education programme. But financial literacy should also be taught at the school and college levels. Today’s youth needs to be aware of the financial tools and the risks involved much earlier than previous generations.
Teaching prudence on money aspects
It’s a good idea to structure financial management lessons in a way that they inculcate the right habits and attitudes towards money. For instance, living within one’s means is a key tenet of prudent financial planning. The money management curriculum can include chapters on budgeting, saving and investing. Children should be taught how to optimise the use of resources and how to distinguish needs from wants.
In all this, the objective of teaching the basics of personal finance at school is not to make our children money-minded. Research shows that children who learn to manage money early are able to better handle their finances as adults. Even a one-hour class in a week can help an individual save thousands of rupees later in life if she learns about the advantages of health policies and other insurance covers. Higher education costs are shooting up every year. Children who learn about money management will also be able to do a cost-benefit analysis of a loan for their higher education.
Of course, the learning should not stop at school or college. Parents who are planning to assist with an education loan are well advised to make their ward a co-borrower that will make him liable to repay the loan. The outstanding loan will instil financial discipline in the child once he starts earning and force him to put away a chunk of his salary to service the EMI.
I have firmly believed that, training our children in the best use of a fishing rod as opposed to making available the fish itself, is always going to be the best investment.
(The writer is Managing Director, MyMoneyMantra.com)