Educating bank customers

We are currently in Financial Literacy Week themed “Consumer Protection”. The Reserve Bank of India (RBI) has organized the initiative. The main aim is to create financial awareness among bank customers about financial products and services, good financial practices and digitisation.

What is this financial literacy and why it’s emphasized? Let me share tale of a school peon to explain ‘what and why’ of financial literacy. The peon working in one of the schools in Srinagar city had a monthly earning of around fourteen thousand rupees. A marketing executive of an insurance company at a bank branch where he was having a basic savings account conned him into buying an insurance plan on the pretext that he would be getting double amount of his investment within 4-5 years only with an exit option after three years. Lured by this offer, he invested around Rs.16000 per year for three years. When he asked the insurance company to pay back his money with profit, he was shocked to learn that his capital investment had lost almost 20 per cent of value due to ‘prevailing market scenario’. He was confused about the ‘market scenario’ and its link to his money invested.

Basically the poor guy had no knowledge about the working of the insurance plan. Had the peon been aware about the product design, he would have perhaps avoided to invest in the scheme. It’s here, financial literacy assumes significance.

Financial literacy refers to the knowledge required for managing money. It encompasses an understanding of how to use loan facility judiciously, manage money, minimize financial risks and derive long-term benefits of savings, investing and availing loans. Being financially literate means that you would be clear about your needs and wants. You can prevent yourself from falling into a debt hole and at the same time it will enable you to climb out of it.

Following demonetization, we are witnessing mass migration of bank customers to digital platform where electronic transactions are fast replacing traditional physical transactions. Scrapping of 86% of bank notes, by value, has triggered manifold growth in transfer of money through electronic mode, huge expansion in network of automated teller machines (ATMs) and point of sale (PoS) machines and also unprecedented rise in debit as well as credit cards.

RBI statistics available reveal that bank transfers made through the National Electronics Funds Transfer (NEFT) system rose five times in number (4.5 times in value), while transfers using the Real Time Gross Settlement (RTGS) system rose 70% in number (50% in value) over five years ending 2016. NEFT recorded 1.19 billion transactions in October 2016, compared to 199 million in 2011; RTGS transactions rose from 511 million to 864 million over the same period.

However, this mass movement of people towards digital transactions has also given rise to huge concern over the security of the data as we have been witnessing surge in online financial transaction frauds. So it is here banks have to lay emphasis on awareness programs to be run consistently across their geographies. They have not only to educate every citizen, be it a literate, illiterate, a farmer, teacher or even high-up of any department or company about the available modes of making cashless transactions, but at the same time, banks have to alert their customers about the dangers while being on online platform. They have to educate them about safety measures while conducting online transactions.

As I have been advocating it in the past too, it would be a shot in the arm if financial education is made a part of school curriculum to make dealing with money in real life easier for the students. If this system of financial literacy is followed, the students would understand the importance of every Rupee, how to earn it, grow it, account for it and manage it better irrespective of their parent’s financial education or socio-economic status.

Meanwhile, the Reserve Bank has shown a novel way to communicate financial literacy messages when they surprised everyone through their ad campaign during the 2018 edition of Indian Premier League (IPL). They beautifully used cricketers including K.L. Rahul, Umesh Yadav, Shabaz Nadeem, Ishan Kishan, Deepak Hooda and Dhruv Shorey - all of them RBI employes - to speak about no-frills savings accounts and the importance of creating a savings pool. These ads carried a huge impact. The point here is that the banks have to tailor their financial literacy campaigns beyond the traditional lines. They should embark upon a media mix with emphasis on online and electronic media to achieve the desired results.

Let me conclude with a quote from J&K Bank Chairman, Parvez Ahmed. He says, “An informed customer is always in the best interest of the Bank.”

(The views are of the author & not the institution he works for)