Financial literacy is more than being able to make investment decisions

financial literacy

Last week one AMC approached me to conduct an Investor awareness session for some corporate employees. I love conducting such sessions so there was no point saying no to them. But before every session, I wanted to make sure the exact number of attendees and their work profile, so I requested the mutual fund house to put me in touch with the HR person who will be arranging the complete show.

I called up the HR Guy, and he told me that the participants would be of Senior manager profile with high-income scale and specifically said that almost all are “Financially Literate” persons, so the presentation should be of quality and useful to them.

There was not much I could do on the presentation part as it was a standard one and specifically oriented towards Investments Especially Mutual funds, but I was excited to interact with the Participants, with the kind of profile I was told by the HR person.

It was a small group of around 15 people. All of them were looking quite mature around 45+ kind of age group.

Before I start the session, once again one of them told me that they are “Financially Literate people” and have attended this kind of presentation many times before. So, I should tell something which was not new to them.

This time I told them that when they know themselves so well and even their understanding level is so high, so rather than doing any session lets answer their questions and doubts. All of them agreed.

As expected the set of questions that came out was, what are the other options to save Tax besides Section 80C savings? What mutual funds and other Investment options can help them generate maximum returns? They were looking for specific product advise.

Starting with tax savings first, I enquired where they were investing currently to save taxes. To which the common reply came was through Home Loan.

Every member of the group was having a Home loan, some of them were having 2 loans. To them, it was investment and tax saving both.

I Further asked how many of them feel that their Job is secure and the Income will keep growing like it was in the past. None of them showed their hands this time.

My next question to them was what plans do they have in their mind and arrangements in their finances, to take care of home loan EMIs and family expenses, in case something happens to their Job. What is the Liquidity situation in their Investments profile? How much of emergency fund have they saved? Do they have Independent health insurance cover?

All of them went quiet, but one person got up and said, after all, Expenses, and EMI’s there was hardly left for them to save.

Sensing the anxiety in others’ silence, I started explaining to them what exactly I wanted to convey.

Friends, financial Literacy does not mean to gain knowledge relating to investments only. Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.

You have to understand the role of money in your life and impact of each financial decisions on other important aspects of your personal finance.

When you are not sure about your tomorrow’s income, how can you bet on long-term housing loans and ensure the regular commitment of EMI payments? Tax saving is one thing but that does not call for getting into a long-term liability.

Investments should not only be looked at from returns perspective only. You need to have a proper understanding of the structure of the product and investment asset class forming the base of that product.

You have to think on all kind of “What if” scenarios and need to have answers to all of them.

When you search for high returns without an understanding of your requirements and not having hold onto your cash flows, then you are exposing yourself to misselling or may be mis buying.

And I am sure these real estate investments are the result of the same. When you had bought it in the first place, you must have been pitched with high returns in this asset class, assured rental incomes, plus tax benefits on a home loan. All this in combination must have looked like a mouth-watering deal to you.

And now in today’s scenario, when real estate is kind of into a slowdown, with a reduction in the tax benefits by the government and increase in family’s expenses with children going into higher classes, you have started feeling the pinch and now finding solutions in “High returns” of equity. (Read: What is a Good Return on Investment?)

Friends, you should think about long-term only after ensuring the short-term and emergency requirements.  There is the difference in making and continuing Investments. Growth in investments should be looked at along with the liquidity and safety concerns, not just tax saving.

Even if Equity markets are going well these days, there’s no surety of it continue giving the same returns always. Long-term equity returns are better than other investment asset classes but only if you stay invested for that long-time frame.

And all this requires an understanding of your cash flow positions, your responsibilities, your goals, your risk tolerance, your taxation profile and not just your returns expectation.

Knowing all these things and the decisions you make for the betterment of life and achievement of goals will decide the wellness in your life. But when you limit your understanding to only investments than you are not doing justice to the financial Literacy levels.

So in the end, my dear friends I would like to say, stop searching for best products and never invest in anything just from tax saving perspective, but strive for a good life with better-suited products and keep learning to be a wise investor.

This article on Financial Literacy first appeared in

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He’s MBA ( Finance) gold medalist, a CERTIFIED FINANCIAL PLANNER, Chartered Trust and Estate Planner and SEBI Registered Investment adviser. He has authored a Book in collaboration with CNBC TV 18 Network 18 bestesellers , tiltled "The Art of Being Good with Money". An ex banker , having a 17+ years of long experience in financial services industry he manages clients across the globe. He is a regular contributor to various leading Media and publication houses. He has written for Moneycontrol, Dainik bhaskar, Business standard, Live mint, Indian Express, The Tribune etc. He has also appeared in TV shows by Zee Business, ET Money, National Door darshan, Jagran Online. He also delivers training on Various personal finance topics to various corporate houses. You may get in touch with him at [email protected]


  1. A radical information provided. Financial literacy is very important in investment decisions. This
    is one of the best ways to fulfil your family’s and your personal aspirations by maximizing your income. It involves allocation of small amounts of money over a period of time to gain profit and grow your money. However, investments are subject to market risks and depends majorly on multiple economic factors.


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