Financial Literacy

Introduction

The term ‘financial literacy’ refers to a variety of important financial skills and concepts people who are financially literate are generally less vulnerable to financial fraud. A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement, using debt responsibly, and running a business. In simple words, Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. When you are financially literate, you have the foundation of a relationship with money.

Benefits of Financial Literacy:

Well, there are many benefits of Financial literacy, from your understanding of personal finance, setting up finance goals, and making choices of investments to retirement planning. Out of all benefits, the major benefit which I consider is protection from fraud/scam. I am talking about scams in the stock market. Yes, you heard it right. if we look back in time several frauds happened in the stock market which eats huge amounts of money of common people

Fraud in the Stock Market:

Well, a share market means a place where owners of companies sell shares of their company ownership in consideration of funds which is called Capital. Investors come here to invest their hard-earned money to gain some interest, and dividends but unfortunately become victims of stock market frauds. Guaranteed income schemes to advance money for high returns, investors are always lured to such scandals.

Ways of Frauds in the Stock Market:

There are several ways in which these can happen to you like

1. Shell companies: scammers incorporate fake companies in the name of big brands like Reliance, and Apple and pretend to be group or subsidiary companies of them just to attract investors.

2. Boiler Rooms: In this brokers recommend those stocks which are outside the risk appetite of the investor and thus investor gets the unbearable loss.

3. Insider Trading: A person who has sensitive info about the company which is publically not disclosed, shall use it to discriminate prices of stock

4. Churning: In this Broking firms advise their clients to sell the investments even in that case also in which it was not required just to earn extra brokerage from the volume of trading.

5. Financial Statement Fraud: Many companies also manipulate their financial statements with the help of window dressing just to hide their true picture from the public. it can be overstating revenue, the Revaluation of Assets without any specific reason, similarly understatement of liabilities.

6. Pump and Down: The share Market is full of rumors and fake information. This misleading information helps in pumping the price artificially into the market let’s understand it with an example suppose a group of persons spread positive news about a company and advertise it so that as many as people get to know and the price starts to rise because of bulk buying when the price will be at peak these group will sell the securities which they have taken at very cheap rates in this way they earn super profits but what about retail investor his money go into vein.

Recently a few weeks back a case of Pump and Dump also comes into the notice of SEBI which is of Sadhna Broadcast Ltd. a broadcast television company. Fake news was spread that Adani Group is going to buy Sadhna Broadcast Ltd. because of some Contracts with Foreign Companies. Now this news was spread over 2 YouTube channels so that prices can rise. And eventually that happens and when it reaches a peak fraudsters sold their shares. SEBI has taken necessary actions against them.

Conclusion:

This is not the only one there are many examples of such frauds like the Harshad Mehta Scam in 1992, Ketan Parekh Scam in 2001 inspired by Harshad Mehta, and so on. Here Financial literacy becomes of utmost importance. We are required to understand that nobody will give us profits overnight, We should analyze the situation and all this can be possible only with the help of Financial literacy.

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Disclaimer: This article is for just information purposes and does not constitute any professional advice. Always invest in the stock market with proper consultation.