Financial Literacy among Rural Households in Coastal Districts of Andhra Pradesh

Volume-6, Issue-4, July-August 2016 International Journal of Engineering and Management Research Page Number: 209-216 Financial Literacy among Rural Households in Coastal Districts of Andhra Pradesh Dr. T.V.V. Phani Kumar Associate Professor, Department of Finance, GITAM Institute of Management, GITAM University, Rushikonda, Visakhapatnam, INDIA ABSTRACT The launch of the Prime Minister Jan DhanYojana (PMJDY) program in August 2014 to bring access to formal financial services to all the India s population has led to the opening of 22.6 crore bank accounts till July 2016. This program is a National Mission on Financial Inclusion encompassing an integrated approach to bring about comprehensive financial inclusion of all the households in the country. The benefits of investing in financial products can be enjoyed by the rural population only after clearly understanding the benefits associated with each product. The financial literacy in Rural India will determine the success of the financial inclusion programs. The present study focuses on understanding the level of financial literacy among the rural households in the coastal districts of Andhra Pradesh. Keywords--- Rural Households, Financial Literacy, Coastal Andhra Pradesh, Financial Inclusion I. INTRODUCTION In the words of President s Advisory Council on Financial Literacy, United States Financial illiteracy is not an issue unique to any one population. It affects everyone: men and women, young and old, across all racial and socioeconomic lines. No longer can we stand by and ignore this problem. The economic future of the United States depends on it. In a survey conducted by Standard & Poor s Financial Services LLC in the year 2015 found that around 76% of the Indian adults are not having adequate knowledge on key financial concepts. According to the MasterCard index for financial literacy (2015), India is in 13th place among the 16 countries in Asia Pacific region in terms of overall financial literacy. The overall financial literacy score of India was down by 2 points compared to last year. In this context, the present student is planned to understand the levels of financial literacy among rural households in coastal districts of Andhra Pradesh. The results of the study can serve as inputs for the policy makers for designing financial literacy programs across rural India. 209 Copyright 2016. Vandana Publications. All Rights Reserved. II. REVIEW OF LITERATURE Gaudecker H and Von M (2015)[1] analysed the impact of financial literacy and financial advice on the investment process of the households. The study revealed that almost all the households who scored high on financial literacy has achieved reasonable investment outcomes. Compared to the households having high score on financial literacy, households with below median financial literacy lose on an average 50bps on expected returns. Lusardi A (2008)[2] studied the impact of financial literacy, information and financial education programs on the household savings behaviour. The study found that Low literacy and lack of information affect the ability to save and to secure a comfortable retirement. The low levels of financial literacy was identified as a major reason for lack of retirement planning and lack of wealth. Majority of the individuals irrespective of their levels of financial literacy, do not rely on the help of financial advisors for making savings and investment decisions. AbhisekMisra (2016)[3] studied the relationship between financial literacy and livelihood security among rural people in India. He concluded that financial education and financial behaviour are prelude to financial security. More financial literacy among the rural people will result in more investments into secured assets and thus creating wealth for them and provides an opportunity to them to offset their risks or contingencies. AabidaAkhter (2016)[4] carried out a survey to assess the awareness of youth about financial concepts to understand their levels of financial literacy. Further, he also analysed the impact of the socio economic factors on the financial literacy. The study found that gender,

education and income had a significant impact on the levels of financial literacy among youth in India. Anjali Devi (2016)[5] conducted a sample study to understand the financial literacy levels among the women in urban and rural areas. The major findings of the study are: (a) Financial Literacy is highly influenced by employment and the resident location i.e. rural and urban. (b) Financial Literacy levels among women in rural areas is much lower than urban women. (c) Financial literacy among working women is higher than non working women. Palvinarula (2016)[6] carried out a study to assess the financial literacy levels of residents of Punjab. The study also analysed the relationship between financial literacy and demographic variables such as age, gender, income and education. PuneetBhushan(2014)[7] examined the relationship between financial literacy of salaried individuals and their investment behaviour. The study found that financial literacy level of individuals affects the awareness as well as investment preferences of salaried individuals towards financial products. Radhika P Desai and Manisha M Surti(2015)[8] studied the gap between literacy rate and percentage of households availing banking services. The study found that there is a moderate correlation between percentage of households availing banking services and literacy level. Ramesh Prasad C (2015)[9] studied how financial literacy contributes financial behavior and thereby financial wellbeing of individuals. The study found that financial well-being of the people depends on improvement in financial behavior, whereas the behavior is contributed by financial literacy. As most of the studies focused on understanding financial literacy levels in Urban India, the present study was planned to focus on the rural households in coastal districts of Andhra Pradesh. III. OBJECTIVES OF THE STUDY The main objective of the study is to understand the levels of financial literacy among the rural households in relation to the different socio economic indicators. IV. METHODOLOGY OF THE STUDY Selection of Sample: The data needed for the study is collected from the select target respondents of in the Coastal Districts of Andhra Pradesh. The target respondents are the rural households of age 18 or above.the data was collected from a total of 55 mandals covering 124 villages across the nine coastal districts of Andhra Pradesh. Data Collection: The data needed for the study is collected from both primary and secondary sources. The secondary sources include the reports published by the financial market regulators and other institutions in the primary market, websites of Government of Andhra Pradesh. Sampling Design: The stratified random sampling technique is used to collect information from the target respondents. The population from which the sample is drawn is divided into different stratas based on nine districts of the Coastal Andhra Pradesh. Sample Size: The total sample size is 2025 rural households in coastal districts of Andhra Pradesh. Statistical Tools: The entire data collected will be coded and computerized in Excel sheets and Bi- Variate analysis is applied. V. PROFILE OF THE SELECT SAMPLE OF RURAL HOUSEHOLDS IN THE COASTAL DISTRICTS OF ANDHRA PRADESH A brief profile of the select sample of the rural households in the study area is presented in the Table 1.1 TABLE 1.1 PROFILE OF SELECT SAMPLE OF RURAL HOUSEHOLDS ACCORDING TO GENDER District Male Female Srikakulam 146 (64.8) 79 (35.2) Vizianagaram 145 (62.8) 86 (37.2) 231 Visakhapatnam 119 (52.9) 106 (47.1) 210 Copyright 2016. Vandana Publications. All Rights Reserved.

East Godavari 125 (55.6) 100 (44.4) West Godavari 125 (55.3) 101 (44.7) 226 Krishna 118 (52.5) 107 (47.5) Guntur 115 (51.2) 110 (48.8) Prakasam 103 (45.5) 123 (54.5) 226 Nellore 93 (42.9) 124 (57.1) 217 Sample 1089 (53.8) 936 (46.2) 2025 Note : Figures in Parenthesis are percentages to total column It can be observed from Table 2.2 that out of the total sample households selected for the study around 54% are male. VI. MEASURING FINANCIAL LITERACY AMONG RURAL HOUSEHOLDS IN COASTAL DISTRICTS OF ANDHRA PRADESH The level of financial literacy is measured taking into consideration of the responses of the rural households to questions on holding of household budget, awareness of interest rates of deposits, awareness of interest rates on loans and awareness of ten financial products viz., Savings A/C, Fixed Deposit A/C, Micro Finance, Personal Loan, Post Office Saving Schemes, Secured Bank Loans, Insurance, Shares, Bonds/Debentures and Mutual Funds. The rural households were scored to 13 and the level of financial literacy is summarized in Table 1.2: TABLE 1.2 ACCORDING TO LEVELS OF FINANCIAL LITERACY Financial Literacy No. of Rural Households Percentage Less than 5 76 3.8% 497 24.5% 1136 56.1% 11-13 316 15.6% 2025 100.0% It can be observed from Table 1.2 that, (i) Only 15.6% of the rural households in coastal districts of Andhra Pradesh have a basic awareness of most of the financial products considered in the study. (ii) Around 28% of the rural households in coastal districts of Andhra Pradesh lacks awareness of atleast half of the financial products considered. VII. LEVELS OF FINANCIAL LITERACY AND AGE age is presented in Table 1.3 211 Copyright 2016. Vandana Publications. All Rights Reserved.

TABLE 1.3 ACCORDING TO LEVELS OF FINANCIAL LITERACY AND AGE Financial Literacy Age Below 30 31-40 41-50 51-60 60 &above Less than 5 15 (2.6) 24 (3.8) 16 (3.3) 16 (6.1) 5 (6.3) 76 (3.8) 129 (22.6) 139 (22.0) 130 (27.1) 78 (29.8) 21 (26.3) 497 (24.5) 304 (53.3) 361 (57.0) 277 (57.7) 146 (55.7) 48 (60.0) 1136 (26.1) 11-13 122 (21.4) 109 (17.2) 57 (11.9) 22 (8.4) 6 (7.5) 316 (15.6) 570 633 480 262 80 2025 (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) It can be noted from Table 1.3 that (i) 21.4% of the rural households in the age group of below 30 years have a basic awareness of financial products followed by 17.2% in the age group of 31-40 years. (ii) The level of financial literacy is more among the households in the lesser age group. Only 2.6% households in the age group of below 30 years have lower levels of financial literacy as against 6.3% in the age group of above 60 years. VIII. LEVELS OF FINANCIAL LITERACY AND EDUCATION education is presented in Table 1.4 TABLE 1.4 ACCORDING TO LEVELS OF FINANCIAL LITERACY AND EDUCATION Education Financial Literacy Under Post Uneducated Graduate Graduation Graduate Less than 5 59 (6.4) 17 (1.8) 0 (0.0) 0 (0.0) 76 (3.8) 331 (36.1) 162 (17.3) 2 (1.4) 2 (5.7) 497 (24.5) 479 (52.3) 608 (65.0) 42 (30.2) 7 (20.0) 1136 (26.1) 11-13 47 (5.1) 148 (15.8) 95 (68.3) 26 (74.3) 316 (15.6) 916 935 139 31 2025 (100.0) (100.0) (100.0) (100.0) (100.0) Note: Figures in the parenthesis indicate percentages to the column totals From Table 1.4 it can be observed that, (i) 42.5% of rural households who are uneducated have lower levels of financial literacy as against 2.4% who are graduates and above. (ii) The levels of financial literacy are directly related to the level of education. This can be observed from the findings that 74.3% of rural households who are postgraduates have higher levels of financial literacy as against 5.1% of rural households who are uneducated. IX. LEVELS OF FINANCIAL LITERACY AND GENDER households according to the levels of financial literacy and gender is presented in Table 1.5 212 Copyright 2016. Vandana Publications. All Rights Reserved.

TABLE 1.5 ACCORDING TO LEVELS OF FINANCIAL LITERACY AND GENDER Financial Literacy Gender Male Female Less than 5 26 (2.4) 50 (5.3) 76 (3.8) 168 (15.4) 329 (35.1) 497 (24.5) 630 (57.9) 506 (54.1) 1136 (26.1) 11-13 265 (24.3) 51 (5.4) 316 (15.6) 1088 936 2024 (100.0) (100.0) (100.0) From Table 1.5 it can be observed that, (i) 82.2% of male households have reasonably higher levels of financial literacy as against 59.5% of female households in coastal districts of Andhra Pradesh. (ii) Only 2.4% of male households have low levels of financial literacy as against 5.3% of female households. X. LEVELS OF FINANCIAL LITERACY AND INCOME income is presented in Table 1.6 TABLE 1.6 ACCORDING TO LEVELS OF FINANCIAL LITERACY AND INCOME Income Financial Literacy < 5,000 5001-10,000 10,001-15,000 1 (0.5) > 15,000 0 76 Less than 5 61 (7.0) 14 (1.7) (0.0) (3.8) 295 167 8 (34.0) (20.6) 27 (13.0) (5.7) 497 (24.5) 451 493 73 1136 (52.0) (60.9) 119 (57.2) (51.8) (26.1) 135 60 11-13 60 (6.9) (16.7) 61 (29.3) (42.6) 316 (15.6) 867 809 208 141 2025 (100.0) (100.0) (100.0) (100.0) (100.0) It can be noted from Table 1.6 that, (i) 94.4% of rural households with monthly income of Rs 15,000 have higher levels of financial literacy as against 58.9% of rural households with a monthly income of below Rs 5000 per month. (ii) The level of financial literacy is directly related to the level of income. This is evident from the finding that no household in the income group of above Rs 15000 have low financial score as against 7.0% in the income group of below Rs 5000 per month. XI. LEVELS OF FINANCIAL LITERACY AND OCCUPATION occupation is presented in Table 1.7 213 Copyright 2016. Vandana Publications. All Rights Reserved.

TABLE 1.7 ACCORDING TO LEVELS OF FINANCIAL LITERACY AND OCCUPATION Financial Literacy Less than 5 11-13 Occupation Cultivation and Employee Cultivation Business Retired Daily Labour Others 1 8 6 4 11 (0.7) (2.4) (1.0) (33.3) (2.7) 46 (9.0) 76 (3.8) 17 51 2 97 222 497 (11.3) (15.0) 108 (17.9) (16.7) (23.7) (43.4) (24.5) 67 205 4 275 236 1136 (44.7) (60.5) 349 (58.0) (33.3) (67.1) (46.1) (26.1) 65 75 2 27 8 316 (43.3) (22.1) 139 (23.1) (16.7) (6.6) (1.6) (15.6) 150 339 602 12 410 512 2025 (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) (100.0) From Table 1.7 it can be observed that, (i) The levels of financial literacy among rural households in the coastal districts of Andhra Pradesh are higher among the employees (88.0%) followed by the households in cultivation (82.6%). (ii) 33.3% of rural households who are retired have lower financial scores. XII. LEVELS OF FINANCIAL LITERACY AND MARITAL STATUS marital status is presented in Table 1.8 TABLE 1.8 ACCORDING TO LEVELS OF FINANCIAL LITERACY AND MARITAL STATUS Financial Literacy Marital Status Unmarried Married Others Less than 5 5 (3.3) 69 (3.7) 2 (25.0) 76 (3.8) 21 (14.0) 475 (25.4) 1 (12.5) 497 (24.5) 56 (37.3) 1077 (57.7) 3 (37.5) 1136 (26.1) 11-13 68 (45.3) 246 (13.2) 2 (20.0) 316 (15.6) 150 1867 8 2025 (100.0) (100.0) (100.0) (100.0) From Table 1.8 it can noted that, (i) The levels of financial literacy are higher among the households who are unmarried (82.6%) followed by the married households (70.9%). XIII. FINDINGS OF THE STUDY The major findings from the study of financial literacy of rural households in coastal districts of Andhra Pradesh are summarized below: (a) The level of financial literacy is more among the households in the lesser age group. (b) The levels of financial literacy are directly related to the level of education. (c) 82.2% of male households have reasonably higher levels of financial literacy as against 59.5% of female households in coastal districts of Andhra Pradesh. (d) The level of financial literacy is directly related to the level of income. 214 Copyright 2016. Vandana Publications. All Rights Reserved.

(e) The levels of financial literacy among rural households in the coastal districts of Andhra Pradesh are higher among the employees (88.0%) followed by the households in cultivation (82.6%). (f) The levels of financial literacy are higher among the households who are unmarried (82.6%) followed by the married households (70.9%). XIV. SUGGESTIONS 1. Economic Empowerment of Rural Households by dint of Financial Literacy : The Government should take necessary initiatives to further improve financial literacy levels in Rural India and thereby strengthen the awareness of financial products among rural households in the country. The Government should involve all the public sector banks, post offices, Insurance Companies and Capital Market Institutions for conducting financial literacy programs in Rural India. 2. Role of FLCCs in improving Financial Awareness :The Financial Literacy and Credit CounsellingCentres (FLCCs) sponsored by the commercial banks set up in the rural areas should be instructed by the Reserve Bank of India to conduct Financial Awareness regularly in the rural areas of India aiming at improving financial literacy. XIV. CONCLUSION Financial Literacy helps the people to manage money more effectively to achieve financial wellbeing by accessing appropriate financial products and services. Financial literacy is the key to make the Prime Minister Jan DhanYojana (PMJDY) a success. Improving financial literacy among the rural households will definitely help the Government of India in achieving its objective of making A financially aware and empowered India. REFERENCES [1] Gaudecker, H., & Von, M. (2015). How does household portfolio diversification vary with financial literacy and financial advice?. The Journal of Finance, 70(2), 489-507. [2] Lusardi, A. (2008), Household saving behavior: The role of financial literacy, information, and financial education programs, (No. w13824). National Bureau of Economic Research. [3] AbhisekMisra (2016), Financial Literacy : A Prelude to livelihood Security, International Journal of Advancements in Research & Technology, Volume 5, Issue 1, P 23-30. [4] AabidaAkhter (2016) Impact ofsocio-economic Factors on Financial Literacy : An Empirical Investigation of Youth, International Journal of Marketing, Financial Services and Management Research, Volume 5, Issue 2, P 47-59. [5] Anjali Devi (2016), Financial Literacy among Women : A Sample Study in the Kamrup District of Assam, EPRA International Journal of Economic and Business Review, Volume 4, Issue 2, P 144-147. [6] Palvinarula (2016), Financial Literacy: An Analytical Study of Residents of Punjab, ZENITH International Journal of Business Economics and Management Research, Volume 6, Issue 5, P 38-53. [7] From PuneetBhushan(2014), the findings presented Relationship above, the following between suggestions are o Financial Literacy and Investment Behaviour of Salaried Individuals, Journal of Business Management and Social Sciences Research, Volume 3, No. 5, P 82-87. [8] Radhika P Desai and Manisha M Surti (2015), A study on Financial Inclusion and Literacy Rate in India, International Journal in Management and Social Science, Volume 3, Issue 3, P 531-537. [9] Ramesh Prasad C (2015), Contribution of Financial Literacy to Behavior, Journal of Economics and Behavioral Studies, Volume 7, No. 6, P 61-71. [10] AabidaAkhter (2016) Impact of Socio-Economic Factors on Financial Literacy : An Empirical Investigation of Youth, International Journal of Marketing, Financial Services and Management Research, Volume 5, Issue 2, P 47-59. [11] AbhisekMisra (2016), Financial Literacy : A Prelude to livelihood Security, International Journal of Advancements in Research & Technology, Volume 5, Issue 1, P 23-30. [12] Agarwalla, S. K., Barua, S. K., Jacob, J. &Varma, J. R. (2015), Financial literacy among working young in urban India, World Development, 67, P 101-109. [13] Al-Tamimi, H.A.H., &Kalli, A.A.B. (2009), Financial literacy and investment decisions of UAE investors, The Journal of Risk Finance, 10(5), P 500 516. [14] Anjali Devi (2016), Financial Literacy among Women : A Sample Study in the Kamrup District of Assam, EPRA International Journal of Economic and Business Review, Volume 4, Issue 2, P 144-147. [15] Beal, D. J., &Delpachitra, S. B. (2003), Financial literacy among Australian university students, Economic Papers, 22, P 68. [16] Bhushan, P., &Medury, Y. (2013), Financial literacy and its determinants, International Journal of Engineering, Business and Enterprise Applications, 4(2), P 155-160. [17] C. Thilakam(2012), Financial Literacy among rural masses in India, paper presented in the 2012 International Conference on Business and Management, 6 7 September 2012, Phuket Thailand. [18] Forte, K. S. (2012), Educating for financial literacy: A case study with a sociocultural lens, Adult Education Quarterly, 63(3), P 215-235. 215 Copyright 2016. Vandana Publications. All Rights Reserved.

[19] Forte, K. S. (2012), Educating for financial literacy: A case study with a sociocultural lens, Adult Education Quarterly, 63(3), P 215-235. [20] Madell, L. & Klein, L. S. (2009), The impact of financial literacy education on subsequent financial behavior, The Journal of Financial Counseling and Planning, 20(1), P 15-24. [21] Forte, K. S. (2012), Educating for financial literacy: A case study with a sociocultural lens, Adult Education Quarterly, 63(3), P 215-235. [22] Madell, L. & Klein, L. S. (2009), The impact of financial literacy education on subsequent financial behavior, The Journal of Financial Counseling and Planning, 20(1), P 15-24. [23] Ramesh Prasad C (2015), Contribution of Financial Literacy to Behavior, Journal of Economics and Behavioral Studies, Volume 7, No. 6, P 61-71. [24] Forte, K. S. (2012), Educating for financial literacy: A case study with a sociocultural lens, Adult Education Quarterly, 63(3), P 215-235. [25] Madell, L. & Klein, L. S. (2009), The impact of financial literacy education on subsequent financial behavior, The Journal of Financial Counseling and Planning, 20(1), P 15-24. [26] Phani Kumar TVV(2012), Financial Literacy A Prerequisite for Effective Financial Inclusion, BIFT s Journal of International Management and Research (ISSN 0975-1378), Vol. IV, No. 2 & 3, Oct-Dec 2012, Jan-Mar 2013, P 44-48. [27] Ramesh Prasad C (2015), Contribution of Financial Literacy to Behavior, Journal of Economics and Behavioral Studies, Volume 7, No. 6, P 61-71. [28] Trivedi, Pratima & Trivedi, Saumya (2014), Financial Literacy an Essential Prerequisite for Financial Inclusion, International Global Journal for Research Analysis, 3(3), P 28-30. 216 Copyright 2016. Vandana Publications. All Rights Reserved.