Группа авторов

The Political Economy of the BRICS Countries


Скачать книгу

followed by Atkinson and Messy (2011) in their cross-national study. The authors construct an index of financial literacy, which ranges from a minimum of zero (i.e. when the respondent does not provides a correct response to any of the questions) to a maximum of 15 (when the respondent provides a correct response to all the questions). The findings show that at the all-India level, the average (resp., median) financial literacy score is 6.8 (resp.,7), with large and significant variation across states not only in terms of overall financial literacy, but also in terms of its sub-components.

image

      Since financial literacy comprises a mix of several attributes, being financially literate therefore does not necessitate a perfect financial literacy score. Based on this logic, we consider an adult as being financially literate if the literacy score is at or above the 75th percentile of the literacy distribution. Using this criteria, we find that 26.2% of the adult population is financially literate. To put it differently, nearly three-quarters of the adult population do not possess sufficient financial literacy competencies.

      Advancing the process further, a multivariate regression exercise is undertaken wherein for respondent i belonging to household HH in district D, the baseline regression is of the form:

image

      where Y is the normalized financial literacy score, µD are the district fixed-effects which absorb any variation at the district level that can impact financial literacy, x is a vector of variables that capture the respondent’s demographic and socio-economic characteristics such as gender, location, age, educational and employment status, z represent characteristics of the household to which the respondent belongs, and finally, ε is the random error term.

image image

      Notes: Standard errors in parentheses. ***, **, and * denote statistical significance at the 1, 5, and 10%, respectively

      The findings point to large and statistically significant gender-, location-, employment-, education-, technology-, and debt-driven differences in financial literacy. To provide some examples, the coefficient on Female (in col. 1) indicates that female respondents display 5.6% lower financial literacy as compared with their male counterparts, and the finding is remarkably robust and consistent related research (Hsu, 2011; Lusardi et al., 2014). In column 4, when we include education as a control, it is observed that higher the levels of education, the greater the financial literacy. As we move up the education scale, the magnitude of the point estimates increases and they are statistically significant as well. Thus, respondents with tertiary education exhibit 14% increase in financial literacy, five times the number obtained from the lowest category (see, for example, Christiansen et al., 2008; Gerardi et al., 2013; Klapper et al., 2013). The final column looks at household debt profile. Debt literacy — defined as the ability to make simple decisions regarding debt contracts — has gained relevance in recent times, because individuals with inadequate understanding of such contracts are often found to engage in higher-cost borrowing (Calcagno and Monticone, 2015), sloppier financial behavior (Gathergood and Weber, 2017), or less advantageous financial contracts (Van Ooijen and van Rooij, 2016). On balance, our finding suggests that less indebted households are financially more literate as compared with those who are more indebted. This is in conformity with prior research (Lusardi and Tufano, 2010) and highlights the risk of potential ‘debt traps’ in the Indian context (Reserve Bank of India, 2017). To see this, note that the coefficient on Savings are larger than Debts: Never equals 4.3%, whereas that on Savings are larger than debts: Always is 10.6%, nearly two-and-a-half times as large.

      Around the world, people with access to formal finance are being asked to assume greater responsibility for their financial well-being. With financial products and services becoming increasingly sophisticated, consumers are constantly challenged to read the fine print to decode the inherent risks embedded in financial products. Rules and conditions for credit cards, mortgages, lines of credit, and other vehicles for borrowing have significantly altered over time, substantially raising the risk exposure of customers. In this changed milieu, financial literacy is being increasingly advocated by regulators as a first line of defense for consumers (Box 6).

      Central Banks and Financial Inclusion

      Our previous discussion suggests that while significant progress has been made on the supply side of financial inclusion, there is still distance to cover on the demand side. This raises the question as to how far central banks have a role to play and how has it changed in the new milieu. It has been argued that financial inclusion is a means and not the end of economic development, and as a result, there is a need to clearly demarcate the relative roles of the central bank and the government in achieving this objective (Reddy, 2015).

      Box 6: Financial literacy around the world

      While stating the need for financial literacy is easy, it is often challenging to clearly define what constitutes financial literacy. Based on 14 countries across four continents, Atkinson and Messy (2012) surveyed the financial landscape with regard to consumer understanding of financial literacy. On average, 1000 adult individuals (i.e. age 18+), both male and female across different income classes, were interviewed face-to-face regarding their financial knowledge, financial behavior, and attitudes and preference towards finance, and the results were summarized and collated. The results indicate important variations across countries. Illustratively, in several countries, a larger proportion of the population achieved a higher knowledge score than a high behavior score, indicating that levels of financial literacy in these countries are higher in terms of knowledge than behavior. Conversely, in several others, financial literacy levels were observed to be higher in terms of behavior. The relevant questions are highlighted in the table below.

image image

      There are several reasons why increased financial inclusion may support the central bank’s task of safeguarding financial stability. First, consumers gaining access to the formal financial system are likely to increase aggregate savings and diversify the banks’ depositor base (Aghion et al., 2009). Any increase in savings has the potential to improve the resilience of financial institutions, given the stability of retail deposit funding, as was evidenced during the crisis (Ratnovski and Huang, 2009; Raddatz, 2010; Cornett et al., 2011).

      Second, by improving firms’ access to credit, financial inclusion can enable financial institutions to diversify their loan portfolios. Moreover, lending to firms that were previously financially excluded may also reduce the average credit risk of loan portfolios. Evidence suggests that an increase in the number of borrowers from small and medium-sized enterprises is associated with a reduction in delinquent loans and a lower probability of default by financial institutions (Bayoumi and Melander, 2008).

      Financial inclusion also has important implications for the transmission of monetary policy. It helps consumers to smooth their intertemporal