Bhaskar Nath Biswal
As per an S&P survey, more than 75 per cent of Indian adults do not understand basic financial concepts like compound interest, budget, retirement planning, responsible borrowing, etc. Around 80 per cent of women lack financial education. A Morgan Stanley report of 2019 revealed that 46 per cent of India’s workforce consisting of millennials contributes around 70 per cent of the household income of the country, yet not given proper financial education which hampers them from taking prudent financial decisions to improve their financial wellbeing and protection. A thrust on financial education has become essential to make financial inclusion meaningful and sustainable.
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The Reserve Bank of India is conducting Financial Literacy Week (FLW) every year, since 2016, to popularise financial education with specific themes every year. This year, the financial literacy week was observed from 8th February to 12th February with the theme ‘Credit Discipline and Credit from Formal Institutions’.
Credit which is understood as debt in general, is discouraged by most of us. Elders in a house advise the next generation not to go for credit as it may ruin or disrupt their economic life. Providing loans is a basic function of the banks and they can discharge this function properly when there is awareness among people about various facilities of credit offered by them. Banks organised various programmes during the FLW to reach out to larger number of masses to spread awareness.
Also, the campaign was made at a right time as more and more fraudulent loan apps that emerged in the aftermath of Covid-19 to target the vulnerable borrowers went up to threatening, abusing and harassing them to recover the loans. News of suicides of borrowers from these loan apps who failed to withstand the pressure of repayment was highlighted by the press across the country. The FLW theme of credit discipline is a step in the right direction.
Let us understand some of the important points regarding loans. Every loan comes with a cost. The principal amount is to be repaid along with interest and other additional charges, if any. Hence one has to plan in advance how he will repay the loan to be availed. The purpose of the loan should be genuine and productive. Loan should always be a last resort. Do not get tempted to take a loan as others around you are taking loans. Also avoid easy loans offered by aggressive lenders who discourage borrowers from reading and understanding the terms and conditions mentioned in the loan documents. It is essential to read and understand the loan documents and ask for explanations wherever necessary before signing the agreement. It is the responsibility of the lender to provide all necessary information and clarify the doubts of the borrower.
One must be cautious about the security offered for obtaining the loan. It may be the house, land, ornaments or any other property. The borrower should realise that he may lose the security, if he is unable to repay the loan. Not only the security is lost, but also the image and credit worthiness of the borrower will be lost in case of default.
It is always better to compare the loan offers by various financial institutions related to interest, period, penalties, processing charges, type of security needed, repayment terms, processing fee, insurance, stamp duty, guarantee, etc. This will help in choosing the right institutions where the borrower will pay less with better terms and conditions. A wrong decision will result in more payment and extra burden financially and psychologically.
The last caution is not to take a loan to repay another. This may lead to a vicious circle from which the borrower cannot escape and finally succumb to the pressure. Repayment of the loan should become the top priority and after total settlement, one can go for another. This will enhance his image and credit score which helps in getting a higher loan.
The efforts of our financial regulators and National Centre for Financial Education in providing financial education to the people will help in achieving their long-term financial wellbeing as well as economic wellness of the country.
The writer is Head, Department of Commerce, Nowrangpur College, Nabarangpur. Views are personal.
