What is Financial Literacy?
‘Financial literacy is a combination of financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on personal circumstances, to improve financial wellbeing’
What is Financial Inclusion?
Financial Inclusion: Many literatures define financial inclusion with financial exclusions, gaining access to formal financial system or some define it as the inability to access necessary financial service in an appropriate form.
Financial Inclusion is a process of including the unbanked section of the society and have access to formal financial services that rages from savings to deposits, credits to investments and insurance etc. However, with relevance to Bhutan, the most meaningful definition would be to ease access to basic financial services making it available and ensure that it is utilized by all section of the society in particularly the lower income group or outreach to the rural areas for an inclusive growth. However, this process should not rule out the important element of finance sustainability and consumer protection.
Why is it Financial Literacy important?
Being Financially literate means being able to understand the benefits of spending less than you earn, looking after yourself and your family, understanding about debts and risk that you are comfortable with, saving and planning for your retirement and old age etc.
In fundamental terms, financial literacy makes you capable in managing day-to-day money and risks effectively. It also helps you in making an informed and sound financial decision backed up with the informed choices and ability to be confident about money and its influencing variables.
Financial literacy also enables trust and confidence to the Bhutanese population towards the Financial and other institutions.
Improving the financial capabilities enhances access to financial services irrespective of level of income, gender and age group. It empowers the dis-connected groups to advance their knowledge in budgeting skills and pursue entrepreneur development, transiting through their behavioral change to an ultimately financially informed citizen. In the process, at the macro level, Financial literacy programs helps in reducing poverty, rural urban migration, unemployment, private sector development contributing to the overall country’s economic development.
Measurement of FL
There is no standard method for measuring the FL. However, there are varying measures to capture certain fraction of the population in a given economy with access to formal financial services. This type of financial access indicators would be constructed using the most recent household survey data and maybe derived from number of bank accounts and GDP per capita. Further to it, it can be constructed from the outreach, usage and quality. These composite indicators maybe normalized and aggregate using statistical weights.
Other studies have looked into the impact of FI on poverty and income inequality. Having a bank branches in the unbanked rural areas significantly reduces poverty and income equality. Increased Financial access in the rural areas improves wellbeing of the poor households as it provides finance for agricultural inputs.