Research Report: Financial Illiteracy & its Impact among Indian Youth

A recent study highlights a significant deficit in financial literacy among young Indians, contributing to concerning trends in debt and investment. With only 27% of Indian adults deemed financially literate by the National Centre for Financial Education, and an even lower rate among youth aged 10-18, the problem is widespread. Research indicates that many young students misunderstand credit card terms, often viewing them as “free money,” leading to a surge in defaults, particularly among millennials and Gen Z. As of early 2024, credit card defaults climbed to 1.8%. Furthermore, while 45% of young Indians under 35 prefer stocks, 42% of non-investors cite a lack of financial knowledge as a barrier. Only less than 4% of India’s population chooses mutual funds or equity-linked assets, contrasting sharply with countries like the US, where 62% of adults actively invest in the stock market. The study, based on secondary data from the past two decades, also reveals a significant gender and socioeconomic divide, with lower literacy rates among female, minority, and first-generation students, and virtually zero access to structured financial literacy programs for rural students. To address these issues, the report recommends integrating mandatory financial literacy modules into school curricula, leveraging digital platforms, fostering industry collaborations for workshops, and launching national awareness campaigns.

1. Introduction

Financial literacy is the ability to comprehend and effectively use various financial skills, tools including personal financial management, budgeting, Saving and investing, financial planing to make informed financial decision to achive financial well being or in a wider term financial literacy can be measured based on financial knowledge, financial behaviour, and financial attitude. In India, young students often lack awareness of credit card terms, Personal loan terms and effect of interest rates, compound interest rate and less Knowledge about healthier investment avenues. This gap contributes to spiraling credit card bills and creates a never ending cycle of debt and missed opportunities for wealth creation where risk match the returns..

2. Brief Review of Literature

In past different research organisation have done study in the field of financial literacy to understand the current landscape. Some are mentioned below :

1) According to the National Centre for Financial Education, only 27% of Indian adults are financially literate.

Globally, less than a quarter of young adults feel confident in their financial understanding.

2) Rbi conducted a research on financial literacy on india under the leadership of Shri Uma Shankar ( Principal Chief general manager Financial inclusion and development department ) Which taken total sample size of 20,000 people in 29 States & Five Union territories.

The outcome of the study suggest risk-return relationship (78%) and inflation (73%) are relatively better understood concepts time value money (41%), simple interest (42%) and compound interest (35%) are areas where there is scope for improvement While 70% of people have rated their financial knowledge as average or above, only 56% actually cross the average score (Score either 4,5,6 or 7)

4) According to Paisabazaar’s latest white paper, ‘Making India Credit Fit.’ The average age of first-time credit users born in the 1990s is a mere 23 years, reflecting the early adoption of credit among Indian youth. Furthermore, over 35% of consumers accessed credit before turning 25, highlighting the growing financial independence of young Indians, the survey said. This surge in credit adoption, while promoting inclusiveness and financial harmony, also raises concerns about a potential debt trap. The need for financial education, particularly in responsible credit usage, becomes crucial as credit becomes more accessible to the youth, the survey said.

3) A research conducted by Limbu & Sato (2019) found that credit card affects self‑efficacy significantly influences financial well‑being, with students owning fewer cards reporting higher self‑efficacy and better outcomes.

3. Methodology

1) This report is based on a descriptive study and it synthesize data from secondary data collection method from Indian and international news outlets, RBI surveys, and academic studies. We conducted web-based searches for articles published in the recent

months, prioritizing reputable sources such as The Times of India, Hindustan Times, Financial Express, and official RBI publications, NSE publications.

2) Period of Study – I have taken data from last 2 decades to upto the current year and month 05/2025 to Show and Analysis pattern of changing behaviour of indians in utilitiesing credit, investing and financial planing in line with increasing financial literacy rate.

4. Limitation of the Study

The Study is conducted using secondary data collection method which use data previously published by news outlets or collected by researchers and there is chances with time significance of data have decreased, inaccuracy in data was present, and difficulty in verifying data quality. the data needed was not readily available or may be biased due to the original purpose of collection.

5. Research Findings

Low Program Reach: Only 14% urban students and virtually zero rural students have access to structured programs on financial literacy. less than 27% of Indians are financially literate. But the number is even more concerning among youth aged 10–18, where structured financial education is nearly non-existent in school curricula. India has more than 250 million school-going children, yet less than 5% of them have access to age-appropriate financial education.

Credit Card Misuse: Students often treat credit cards as free money, unaware of compound interest and late fees. India’s credit card boom has reached a tipping point. While credit cards were once seen as a symbol of financial freedom and convenience, they are now pushing many young Indians into a growing debt trap. Defaults on credit card payments have surged, particularly among millennials and Gen Z, despite growing awareness of credit score. In the first half of 2024, credit card defaults climbed to 1.8%, up from 1.7% at the end of 2023, according to data from TransUnion CIBIL.

Rising Student loans : As of late 2024, over 1.33 million students are pursuing higher education abroad according to the recent report published by PTI. This takes us to the question, about the significance of taking a student loan. Debt burden: A loan comes with the capability to accrue debt. For this reason, individuals who take loans during their early age might find it difficult later on and it might take decades for them to be able to pay the debt. This can also impact your credit score.

Accumulation of interest: A loan installment if not well controlled may result in accumulation of interest. Interest which is accumulated over time increases the total amount to repay.

Investment Gaps: While 45% of young Indians under 35 now prefer stocks, 42% of non‑investors cite lack of financial knowledge as the barrier to invest. Considering India’s population, less than 4% choose mutual funds or equity-linked assets. Among major global economies, India has the lowest household exposure to equities at 4.7%. The number is three times more for Europe and four times for the US.

Government Initiatives: NSE and state MoUs aim to introduce 50‑hour courses in higher education institutions, but penetration remains limited

Equity Investment Approach in india : As of March 2025, the National Stock Exchange (NSE) has 4.92 crore active demat accounts. This represents a significant increase, with over 84 lakh new demat. accounts added during FY25, a 20.5% year-on-year growth. Whereas In 2025, an estimated 162 million U.S. adults, or 62% of the adult population, are actively investing in the stock market, according to a Gallup survey. This figure has remained relatively stable over the past few years, although it’s still below the level seen before the Great Recession.

Gender and Socioeconomic Divide: Research indicates lower literacy among female, minority, and first‑generation students (26%, 24%, 33% respectively) In rural areas, where access to financial services is often limited, the importance of financial literacy becomes even more crucial. Financial literacy holds a pivotal role in empowering women in rural areas, offering a multitude of benefits. Firstly, it promotes economic empowerment by equipping women with the knowledge and skills to make informed financial decisions, effectively manage budgets, and save for the future.

6. Discussion

As India Set’s target to become 10 Trillion $ Economy By 2030. It is most essential for youth to be financially literate to play instrumental role in accomplishing the vision. The findings highlight a critical need for scalable, engaging financial education tailored to young audiences. While government and institutional efforts exist, they lack comprehensive rollout. Integrating practical modules on budgeting, credit management, and basic investing into basic curricula as essential could mitigate credit card and debt burdens and promote long-term financial health.

7. Recommendations

Curriculum Integration: Mandate a 20‑hour financial literacy module for all streams in all higher secondary schools of state boards as a basic and essential education program.

Digital Platforms: Leverage gamified apps and playful learning lessons to teach budgeting and interest computations in a more interesting or easily adaptive manner

Industry Collaboration: Encourage banks/NSE to provide free workshops in rural and urban areas and give certification to encourage participation among youth and rural or urban population.

Community-Level Financial Education : Use Self-Help Groups (SHGs), panchayats, NGOs, and local banks to organize grassroots literacy sessions.

Focus on rural and semi-urban India where awareness is lowest.

Involve women and youth directly — two key target groups for financial empowerment

Parental Engagement: Run community seminars to involve families in financial education.

National Financial Literacy Campaigns : Organize frequent, targeted campaigns through TV, radio, social media, and street plays.

Focus themes: “Avoid credit card traps”, “Save before you spend”, “Don’t invest without understanding”.

Monitoring & Evaluation: Regular assessment of any program is vital step to increase the impact on audience. The assesment of impact is done via surveys, online polls, questionnaire and adjust content accordingly.

8. Conclusion

Addressing financial illiteracy among young Indian students is vital to prevent debt accumulation and empower informed investment decisions. A multifaceted approach—combining formal education, digital tools, and industry partnerships—can create a financially savvy generation ready to navigate with credit and investment decision in complex landscape.

9. References

• National Centre for Financial Education: Survey data on financial literacy rates
• Hindustan Times: Importance of distinguishing good vs. bad debt in students
• Limbu, Y. B., & Sato, S. (2019). Credit Card Literacy & Financial Well‑Being
• Financial Express: Young Indians’ investment preferences
• Times of India: NSE‑Odisha MoU for literacy courses
• ResearchGate: Study on credit card usage behaviour in India
• Times of India: KGBV student training initiative
• FT.com: Rising young investors and debt risks
• Gallup news.com : What percentage of americans own stock