Financial Counseling, Financial Literacy, and Household Decision Making

In this chapter we review the literature on financial counseling, financial literacy, and consumer decision making and look at a financial counseling/planning program in India where consumers revealed their risk appetite, future financial goals, and current assets and liabilities. The results from India suggest that a vast majority of the respondents appear to be financially literate – they answer the numeracy, inflation, and diversification questions correctly. The Indian financial literacy level is the same as in Netherlands but 20% higher compared to the USA. Indians use about 38% of monthly income to cover monthly expenses – they save or invest 62% of their salary on average. However, we find that most consumers are ill prepared to meet their goals based on their asset, liabilities and risk profiles. The survey of the literature suggests that financial counseling is an important tool in educating consumers in their decision making.