Do educated youth in urban India understand interest calculations, relationship between inflation and return, inflation and price and risk and return? While majority of people would say yes, a study conducted by Indian Institute of Management, Ahmedabad (IIMA) paints a contradictory picture.
A study of 754 urban youth in India highlights that only 24% of the respondents figured in the list of ‘high financial knowledge’ which is poor compared to 13 countries in the Organisation for Economic Co-operation and Development (OECD).
Also, the participant’s performance on various dimensions suggested lack of understanding of basic principles related to money in daily life as one third of them failed to perform simple numerical task involving divisions! Only about 19% of the respondents understood the impact of inflation on the rate of return.
According to the study Indian urban youth’s financial knowledge is poor. The study points only 24% of respondents exhibited high financial knowledge which is poor score compared to the OECD survey across 13 countries where on an average more than half of the respondents scored high on financial knowledge.
The study — Financial Literacy among Working Young in Urban India has been conducted by four faculties at IIMA — Samir Barua, Jayanth Varma, Sobhesh Aggarwalla and Jacob Joshy to investigate the influence of socio-demographic factors on various dimensions of financial literacy among the working young in urban India. Financial literacy is measured by ranking knowledge in financial knowledge, financial behavior and financial attitude. The study was conducted in six major cities.
The study, however, points out that urban, educated youth showed better performance in other two aspects of ranking: financial behavior and financial attitude.
“The average score for the sample is at 13.8 which is within the range of average scores of 12.4 and 15.1 reported by the OECD study for the 13 countries. India is well ahead of several countries including South Africa, Armenia, Poland, Estonia, and Albania,” it states.
The parameters of financial knowledge
Financial knowledge understanding of interest calculations, relationship between inﬂation and return, inﬂation and prices, risk and return, and the role of diversification in risk reduction.
Financial behaviour scale assesses the way respondents deal with money in their daily lives through assessment of affordability of products and expenditures, timely payment of bills, planning and monitoring of the household budget, active saving habits, propensity to borrow
Financial attitude is measured in terms of agreement or disagreement towards statements about, extent of belief in planning propensity to save, and propensity to consume.