Whalesbook
India's drive for financial inclusion has brought millions into the formal banking system, but a new study reveals a significant problem: many households lack essential financial skills. The first-ever Financial Maturity Index (FMI), from IIM Udaipur's JM Financial Centre for Financial Research and PRICE, analyzed 4,075 households in Gujarat and Rajasthan. It found that while people have bank accounts, they find it hard to use the financial system to build wealth or secure their future. This gap challenges India's economic progress.
Saving Without Strategy: A Missed Opportunity
Most people surveyed save regularly, but fewer than a quarter invest any of their income. This shows a big gap between simply saving and managing money wisely for growth. Nationally, household financial savings have fallen to multi-decade lows, even as investment in stocks and mutual funds has grown. This suggests savings are often kept idle instead of being invested for growth, or are used to finance consumption funded by increasing household debt.
Planning and Knowledge Gaps Widen
Scores for financial planning, risk management, and gender equality were very low, pulling the overall FMI for Gujarat (33.6) and Rajasthan (32.0) into the bottom third nationally. Basic financial literacy and saving attitudes were fair, but understanding key ideas like compounding and inflation is weak, with only 35-38% grasping compounding. Understanding complex financial topics is even lower; only 12-17% could correctly define mutual funds or stocks. This knowledge gap is a national issue, as India's overall adult financial literacy is estimated at just 27%, far below that of developed economies. Some regions show better literacy, but rural and urban areas often differ in digital financial skills.
Retirement Security Lags Amid Family Needs
The retirement picture is especially concerning. Over half of those surveyed haven't started planning for retirement, and nearly 75% don't know about the National Pension System (NPS), a key government savings plan. Family needs like children's education, health, and housing consistently come before retirement planning, making it an afterthought rather than a goal. This lack of foresight means many people are unprepared for life after work, potentially increasing reliance on social support and limiting their financial independence.
Digital Tools Used Sparingly Amid Trust Issues
Digital payment systems are widely available, but usage is inconsistent. Just 22.3% use UPI daily, while 55% never use it. Budgeting apps are used by only 3.2%. More worryingly, only 36% feel confident resolving digital payment disputes, even though a growing number borrow money digitally. This lack of trust limits smooth digital use and creates risks, despite efforts by the RBI and NPCI to build confidence with new dispute resolution systems.
Lack of Resilience Creates Systemic Risk
Low financial maturity not only affects individual wealth but also weakens overall economic resilience. Households without good financial plans or emergency funds are more vulnerable to economic shocks, inflation, and unexpected costs. This makes them prone to taking on more debt and using expensive ways to cope. While PMJDY brought millions into banking, it has had little effect on actual financial resilience or proactive use of financial services. This gap poses a major economic risk, potentially slowing India's goal of sustained, inclusive growth.
States and Financial Sector Face Challenges
States like Gujarat and Rajasthan, with low financial maturity, may fall behind regions with stronger financial skills in capital and investment growth. This lack of understanding also limits demand for complex financial products, potentially hindering innovation in the financial sector. With national savings declining and household debt rising, better financial education is crucial to guide consumers toward sustainable investing and away from risky borrowing.
Moving Forward: Education Is Key
Experts, including Saurabh Garg, Mospi Secretary, agree that improving financial skills is vital for retirement, resilience, and responsible market participation. The study highlights a critical need to shift focus from just expanding access to financial services to providing strong financial education. Programs must give people the knowledge to understand compounding, plan for the future, manage risks, and confidently use the complex digital financial system. Without this development, India's financial inclusion goals may not be fully met.