Rupee logo and Indian currency coins (Image for representation)
Over the past decade, India has executed one of the world's most ambitious financial inclusion programmes. With over 55 cr bank accounts opened, rapid expansion of digital payments, and deeper access to formal credit and insurance, the financial system has extended its reach across geographies and income segments. This is the foundational step for inclusive growth. With access no longer being the binding constraint, the more pressing challenge is whether households can use financial services effectively.
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Evidence from the Financial Maturity Index, based on IIM Udaipur-People Research on India's Consumer Economy (PRICE) surveys across Gujarat and Rajasthan, suggests that while inclusion has scaled, financial maturity - the ability to make informed, resilient and forward-looking financial decisions - remains uneven. This gap between access and capability is emerging as a structural constraint on inclusive development.
Findings point to a disconnect.
Weak fundamentals: Households are active participants in the financial system, yet many don't understand compounding, inflation and risk diversification. When households do not fully understand how interest rates, inflation, or risk operate, policy signals are less likely to translate into behavioural change.
The study finds that fewer than 40% of households have emergency savings to cover 3 months of expenses, even though more than one-third have experienced a financial shock in recent years. Households continue to rely heavily on informal coping mechanisms, including borrowing from family networks, liquidating assets, or resorting to high-cost credit.
The findings also emphasise that income and information independently shape financial behaviour. This insight is important for policy design. Even among households with similar income levels, differences in awareness lead to different financial outcomes.
At the same time, some younger and better-educated individuals demonstrate stronger conceptual understanding despite lower income levels. This suggests that financial capability is not purely determined by income. It is also shaped by exposure, education and access to information.
Myopic view: The study highlights a strong short-term orientation in household financial behaviour. While more than 85% of respondents express a preference for saving over non-essential spending, these intentions do not consistently translate into structured financial planning. Retirement planning is weak, with most households prioritising immediate financial needs such as education, health and consumption.
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This behaviour is not irrational. The study observes that risk-taking and long-term planning are closely linked to economic capacity. Households with limited income buffers are less able to absorb shocks and so prioritise liquidity and security over long-term returns. Financial maturity, in this sense, is both an outcome of economic development and a contributor to it.
Weak financial diversification: Meaningful participation in equity or market-linked instruments is largely confined to higher-income households. For the majority, portfolios remain dominated by traditional assets such as bank deposits, gold and real estate.
From a policy perspective, these findings suggest the need for a fundamental shift.
There is a need to move from access-based metrics to capability-based metrics. Account ownership and transaction volumes are no longer sufficient indicators of progress. Policymakers need tools that capture how households behave and where capability gaps exist.
Financial education must move beyond awareness campaigns. The persistence of financial stress, decision inertia and low confidence indicates that information alone is not enough. Policies must be designed to address behavioural barriers such as complexity, uncertainty and lack of trust.
Strengthening financial capability must be recognised as essential for macroeconomic policy effectiveness. Without it, the transmission of interest rate changes, inflation expectations and savings incentives will remain incomplete.
India's financial inclusion story has been transformative. But inclusion, by itself, is only the first step. The next phase must focus on building financial capability at scale, ensuring that households are not just connected to the financial system but are also equipped to navigate it effectively and confidently.
Because inclusion opens the system. Financial maturity determines outcomes.
Banerjee is director, IIM Udaipur. Shukla is MD-CEO, PRICE
Also Read: How states spend: Rising costs, growing deficits, need for efficient spending
Evidence from the Financial Maturity Index, based on IIM Udaipur-People Research on India's Consumer Economy (PRICE) surveys across Gujarat and Rajasthan, suggests that while inclusion has scaled, financial maturity - the ability to make informed, resilient and forward-looking financial decisions - remains uneven. This gap between access and capability is emerging as a structural constraint on inclusive development.
Findings point to a disconnect.
Weak fundamentals: Households are active participants in the financial system, yet many don't understand compounding, inflation and risk diversification. When households do not fully understand how interest rates, inflation, or risk operate, policy signals are less likely to translate into behavioural change.
The study finds that fewer than 40% of households have emergency savings to cover 3 months of expenses, even though more than one-third have experienced a financial shock in recent years. Households continue to rely heavily on informal coping mechanisms, including borrowing from family networks, liquidating assets, or resorting to high-cost credit.
The findings also emphasise that income and information independently shape financial behaviour. This insight is important for policy design. Even among households with similar income levels, differences in awareness lead to different financial outcomes.
At the same time, some younger and better-educated individuals demonstrate stronger conceptual understanding despite lower income levels. This suggests that financial capability is not purely determined by income. It is also shaped by exposure, education and access to information.
Myopic view: The study highlights a strong short-term orientation in household financial behaviour. While more than 85% of respondents express a preference for saving over non-essential spending, these intentions do not consistently translate into structured financial planning. Retirement planning is weak, with most households prioritising immediate financial needs such as education, health and consumption.
Also Read: GST states quo won't do: Post-GST revenue divide widens across India
This behaviour is not irrational. The study observes that risk-taking and long-term planning are closely linked to economic capacity. Households with limited income buffers are less able to absorb shocks and so prioritise liquidity and security over long-term returns. Financial maturity, in this sense, is both an outcome of economic development and a contributor to it.
Weak financial diversification: Meaningful participation in equity or market-linked instruments is largely confined to higher-income households. For the majority, portfolios remain dominated by traditional assets such as bank deposits, gold and real estate.
From a policy perspective, these findings suggest the need for a fundamental shift.
There is a need to move from access-based metrics to capability-based metrics. Account ownership and transaction volumes are no longer sufficient indicators of progress. Policymakers need tools that capture how households behave and where capability gaps exist.
Financial education must move beyond awareness campaigns. The persistence of financial stress, decision inertia and low confidence indicates that information alone is not enough. Policies must be designed to address behavioural barriers such as complexity, uncertainty and lack of trust.
Strengthening financial capability must be recognised as essential for macroeconomic policy effectiveness. Without it, the transmission of interest rate changes, inflation expectations and savings incentives will remain incomplete.
India's financial inclusion story has been transformative. But inclusion, by itself, is only the first step. The next phase must focus on building financial capability at scale, ensuring that households are not just connected to the financial system but are also equipped to navigate it effectively and confidently.
Because inclusion opens the system. Financial maturity determines outcomes.
Banerjee is director, IIM Udaipur. Shukla is MD-CEO, PRICE
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
Ashok Banerjee
He is director, IIM Udaipur
Rajesh Shukla