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Educating small investors

Making individuals aware of the risks and rewards associated with specific investment options has never before been as vital to public policy as it is today. Financial sector reform implies deregulation and the controlled regime yielding place to the market forces. That and the rapid integration of India with the rest of the world through globalisation has given consumers a much wider range of financial products to choose from. The role of financial education goes beyond enabling prospective investors to make an informed choice. In the developed as well as emerging markets, it has become a useful tool for empowering them to participate in financial markets with adequate knowledge and confidence. Financial instruments tend to become complex and as the role of the state in providing social security shrinks, the onus of safeguarding one's interests increasingly vests with oneself.

In India, potential subscribers to the market-based pension schemes (now on the anvil) need to be made aware of the specific risks in, say, a predominately equity-oriented scheme. Even in the case of banking products and services, now re-packaged and aggressively marketed, customers would need a lot of guidance and education if they were to see through the clutter and the hype. Financial education complements the efforts at making the financial sector more transparent. Given the magnitude of the task involved, `catch them young' should be the guiding principle — in some advanced countries, the process starts even at the primary school stage. It is time India joined the list of select countries that have made financial education a thrust area of public policy and put in place institutional mechanisms for the purpose.

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