By Harshita Mansharamani and Anirban Kundu
The need for financial literacy is growing amid increasing uncertainties in the global financial landscape. In such a dynamic world, financial literacy plays a crucial role in helping individuals make daily financial decisions wisely. Financial Literacy has been recognized as a necessary life skill, as financially literate individuals are better prepared to handle such volatility and demonstrate financial resilience during times of crisis.
The global financial landscape is revamping with the evolution in financial technology, surge of newer and complex financial markets, digital innovations and transitioning consumer financial behavioural patterns. The need for financial literacy is growing amid increasing uncertainties in the global financial environment. Financial Literacy has been recognized as a necessary life skill resulting from increased cost of living due to high inflation, widespread financial crises and growing number of financial scams and frauds. The Organization for Economic Cooperation and Development (OECD) defines financial literacy as “a combination of financial awareness, knowledge, skills, attitudes, and behaviors necessary to make sound financial decisions and ultimately achieve individual financial well-being[1].”
Navigating Uncertain Times Through Financial Literacy
The financial situation around the world is unstable threatening the macro financial stability amid rising geopolitical and economic uncertainties. The International Monetary Fund (IMF) has projected the growth rate for 2025 at 3.3 per cent which is below the historical average of 3.7 per cent[2]. This sluggish performance can be attributed to heightened policy uncertainty, regressive policy shifts, prolonged inflation, and climate-driven disruptions. Financial Literacy equips an individual to combat financial risks against such financial shocks. The experience from the Covid-19 pandemic was catastrophic as it significantly impacted financial resilience of people in the form of reduced savings, uncertain family income and increased expenditures. Previous research suggests that financially educated individuals had better financial management skills and depicted resilient financial behavior during the pandemic.
The ongoing crises stemming from protectionist U.S. tariff measures, dipping Information Technology (IT) stocks, and the everlasting Russia-Ukraine war are contributing significantly to the global stock market downturn. The Indian stock market witnessed one of its worst crashes since the COVID-19 pandemic, with a sharp fall of approximately 5 percent in April 2025[3]. In such periods of socio economic disruption, financial literacy plays a significant role in shaping investor decisions which can aid in market stability. Investors with higher levels of financial literacy are likely to depict resilience in their financial behaviour during stock market crashes. Such investors tend to buy additional stocks rather than selling their holdings fostering potential recovery of the market. They diversify their portfolio, make rational decisions and understand the risk return trade-off while making investment decisions.
Financial Literacy as a Driver of Prudent Financial Decisions
Financial Literacy is a crucial skill that enables an individual to make informed financial choices which results in effective financial planning and better management of finances. It positively impacts financial choices of an individual leading to improved savings habits, investment habits and robust retirement planning. Financially literate individuals are more likely to generate higher returns on savings accounts which further increases their willingness to save. Moreover, financial literacy increases the likelihood of participation in the stock market thereby resulting in prudent investment behaviour. In response to this, the Reserve Bank of India has included the promotion of savings behaviour and participation in financial markets as core objectives in the National Strategy for Financial Education 2020-2025[4]. Promoting healthy financial habits act as a nudge inculcating financial discipline among individuals and encourage mindful investing behaviour among them.
Financially educated individuals are more likely to make informed financial decisions, which fosters greater financial inclusion. On the other hand, the reverse also holds true. Adults with access to formal financial services, such as bank accounts, debit, and credit cards, tend to possess higher financial knowledge and skills, regardless of other factors. Therefore, while financial literacy enhances financial inclusion, engaging with financial services like bank accounts or credit systems also improves individuals’ financial competitiveness.
Governmental Push for Financial Literacy: The Indian Approach
Recognizing the need for financial literacy, governments worldwide are making significant efforts to improve access to financial products and services. Consequently, there has been a notable rise in the number of people holding bank accounts and gaining access to credit. According to World Bank, global account ownership at a financial institution or with a mobile money service provider has increased from 51 per cent to 76 per cent between 2011 and 2021[5].
The need for financial literacy has been recognized more than ever by the governments and financial institutions across both developed and developing economies. As a result, governments all around the world including India are making significant efforts to increase awareness and to provide greater access to financial products and services. The Indian government has launched initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY) and National Centre for Financial Education (NCFE) targeted at improving financial inclusion and financial literacy in the country. On the other hand, Reserve Bank of India (RBI) is working on multiple campaigns and programmes on financial literacy in collaboration with the financial sector regulators. It has introduced National Strategy for Financial Education (NSFE), started Financial Literacy Centres (FLCs) and integrated with various state boards to introduce financial literacy education at the elementary school level. In addition, RBI has initiated a dedicated campaign of celebrating financial literacy week each year to raise awareness on important topics pertaining to financial management.
Ground Reality of Financial Literacy
Despite several government initiatives directed towards enhancing education, a sizeable portion of the population around the world still lacks basic financial skills and knowledge, imposing obstacles to economic growth. According to the 2023 International Survey on Financial Literacy by the Organisation for Economic Co-operation and Development (OECD), only about 34% of adults, on average, meet the minimum criteria for financial literacy[6]. Moreover, the National Centre for Financial Education (NCFE) Financial Literacy and Inclusion Survey 2019 demonstrate that financial literacy rate in India stands at 27 per cent which is fairly low as opposed to major advanced economies[7]. The economically vulnerable groups such as women, older generation and less educated groups have lower financial literacy levels.
Financial literacy is closely associated with economic growth as it is linked to boosting productivity, creating jobs, improving cash flow management, and generating wealth. Therefore, improving financial literacy across all demographics should be a primary concern for all the policymakers and governments.
About the Authors
Harshita Mansharamani is a doctoral researcher in Economics at Christ University, Bangalore. Her research focuses on examining the impact of financial literacy on financial decision-making. She is particularly interested in how financial education influences individual financial behaviour. Her broader academic interests include promoting financial awareness among vulnerable groups and integrating behavioural science with financial literacy to enhance financial outcomes and policy relevance.
Dr. Anirban Kundu is an Assistant Professor of Economics at Christ University, Bangalore. He holds a Ph.D. from the Centre for Development Studies, Kerala. His research spans diverse areas, including agriculture and the informal sector. His doctoral work focused on the non-agricultural informal sector in India and its interlinkages with services, agriculture, and formal industry.
References
[1] OECD (2023), “OECD/INFE 2023 International Survey of Adult Financial Literacy”, OECD Business and Finance Policy Papers, No. 39, OECD Publishing, Paris, https://doi.org/10.1787/56003a32-en.
[2] International Monetary Fund. (2025, January 17). World economic outlook update: Global growth: Divergent and uncertain. https://www.imf.org/en/Publications/WEO/Issues/2025/01/17/world-economic-outlook-update-january-2025
[3] Finblage. (2025, April 7). The April 2025 Indian stock market crash: Causes, impact, and expert analysis. https://www.finblage.com/market-insights/the-april-2025-indian-stock-market-crash%3A-causes%2C-impact%2C-and-expert-analysis
[4] Reserve Bank of India. (2020). National Strategy for Financial Education: 2020–2025. https://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=1156#CH4
[5] Demirgüç-Kunt, A., Klapper, L., Singer, D., & Ansar, S. (2022). The Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19. World Bank. https://www.worldbank.org/en/publication/globalfindex
[6] OECD (2023), “OECD/INFE 2023 International Survey of Adult Financial Literacy”, OECD Business and Finance Policy Papers, No. 39, OECD Publishing, Paris, https://doi.org/10.1787/56003a32-en.
[7] National Centre for Financial Education. (2019). Financial Literacy and Inclusion Survey 2019: Executive Summary. https://ncfe.org.in/wp-content/uploads/2023/12/ExecSumm_.pdf
