76% of Indians not financially literate, says S&P survey

Key financial concepts, including risk diversification, inflation and compounded interest are not understood by majority of Indians

As much as 76% of Indians do not understand key financial concepts like inflation and interest rate, lower than the worldwide average, a S&P Ratings Services survey said today.

Standard & Poor's Ratings Services Global Financial Literacy Survey said in Asia, Singapore is home to the highest percentage of financially literate adults (59%), followed by Hong Kong and Japan (both at 43%). Less than a third of adults in China (28%) are financially literate.

The survey found that 76% of Indian adults do not adequately understand key financial concepts, including risk diversification, inflation and compounded interest.

"This is lower than the worldwide average of financial literacy, but roughly in line with other BRICS and South Asian nations," it said. Also about 66% of adults worldwide are not financially literate.

The material gap between men and women existed in almost every country. Worldwide, there is a five-point gender gap with 65% of men not being financially literate compared with 70% of women, the survey said.

In India, the gap was wider with 73% of men and 80% of women not being financially literate.

The survey also found out information about consumers' familiarity with the financial products they utilise.

"While the array of financial products available in Asia continues to grow rapidly, the survey suggests that most consumers lack a general understanding of credit, compound interest and other key concepts," the survey said.

Research increasingly shows that saving money is better for development than credit. Yet, just 14% of adults in India save at a formal financial institution and their weak financial skills raise questions as to whether they're getting the most out of their money, it added.

The survey interviewed more than 1.5 lakh adults across over 140 countries and tested individual's knowledge on four basic financial concepts: numeracy, risk diversification, inflation, compound interest (saving and debt).

According to the survey, 75% of Asian adults and in comparison, 57% of adults in US and 67% in UK are financially literate.

Only 14% of Indian adults correctly answered the question on risk diversification. Conversely, 56% answered the inflation question correctly.

About 39% of adults who have a formal loan are financially literate, while more than a quarter (27%) of formal borrowers were found to be not financially literate. Only about half of the participants (51%) understood compound interest.

It said in India, 26% of adults in the richest 60% of households are financially literate compared to 20% of adults in the poorest 40% of households.

Worldwide, 36% of adults in relatively richer households and 27% of adults in relatively poorer households are financially literate.