This is the speech by Dr. Y. V. Reddy, ex-Governor, Reserve Bank of India in September, 2006.
[..the current state of transparency coupled with the difficulty of consumers in identifying and understanding the fine print from the large volume of convoluted information, leads to an information asymmetry between the financial intermediary and the customer. For example, customers are often penalised for minor violations in repayments, although they have limited redressal mechanisms to rectify deficiencies in service by banks, rendering the banker-customer relationship one of unequals. In this relationship, it is the principal, that is, the depositor, who is actually far less powerful than the agent, that is, the bank. The representations received in regard to levying of unreasonably high service or user charges and enhancement of user charges without proper and prior intimation, and the growing number of customer complaints against the banks, also testify to this fact. In this context, financial education may help to prevent vulnerable consumers from falling prey to financially disquieting credit arrangements.]
Nothing much has changed. So what’s the way forward?
Dr. Reddy talks about the responsibility of financial institutions to impart this financial education. Unfortunately, to my mind, these institutions have a vested interest in continuing this information asymmetry so as to maintain their operating margins.. For example, if the Insurance Companies warn customers about the heavy cost of buying ULIPs, their business suffers.
My take would be to make the Employers understand the need to impart financial education to their employees. There’s a win win situation for both of them.
It is a good idea that Employers offer Employees access to resources, education, counseling, and advice to decrease their stress about money matters and improve their financial lives. The Employer gets improved employee engagement and employee productivity at work.
Do you agree/ disagree?
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Thats a good idea, but i dont think our indian corporates would invest money in educating their employees in managing their personal finance or providing financial education to them.
If not education , atleast , each and every company can have a Certified Financial Planner in their company to provide guidance for employees in handling their own money which may also act as an exit barrier for employees to leave that organisation.
It’s not really a big investment for the Corporates. And Corporates have a huge interest in developing their employees through training. In fact corporates spend huge money on training and development. My roughestimate is that it is 5% of the annual wage bill.
So Financial education can be a part of this expense. The idea of having a CFP at Companies for this is very interesting.
Cool tool thanks for posting this up