Exclusive: Financial literacy is not luxury anymore; it's a fundamental right for everyone, says Krishan Mishra, FPSB India CEO

Financial Planning India: Indian women are adept at managing finances and running their households efficiently; however, when it comes to understanding financial planning, which is more scientific, that awareness is still not there among them. A lot of work needs to be done to make them aware and understand. Similarly, today's youth are also clueless about a lot of things surrounding financial planning, says FPSB India CEO Krishan Mishra in an exclusive interaction with Zee Business' Swati Verma. FPSB India is an Indian subsidiary of the Financial Planning Standards Board (FPSB Ltd.), the global standards-setting body for the financial planning profession and owner of the international CERTIFIED FINANCIAL PLANNER certification programme.

Krishan Mishra has more than 20 years of experience in the financial services, education, and technology sectors, across operations, business and strategy development, marketing, and corporate sales.

Edited excerpts:

Why is financial planning important?
 

Earning money and being financially independent are extremely important for every individual; likewise, planning one's finances is also indispensable for a good quality of life. Human beings were born as a family or society, wherein we used to think about earning money first and then choosing where to spend it. However, with changing times, our living patterns have also changed. In today's world, people have easy access to finances, credit, and loans, and hence, nowadays, most people spend first before making a proper blueprint of how much to spend, where to spend, where to invest, how much to invest, and how much to save. This is why financial planning is important, because if you don't manage money, money starts managing you.
 
Now, financial planning is a much wider term, wherein we not only talk about how to efficiently manage one's money for wealth creation but also talk about ensuring that an individual is invested well in the market, that one is also able to manage their risks, and that they are also capable enough to take care of their retirement because whatever lifestyle one is enjoying today, they would like to carry on once they retire as well.
 
We also talk about estate planning, which is a crucial area. Considering the situation in our country, a lot of people never prepare their will, and then later they or their family and loved ones go through a difficult time. In fact, a lot of court cases happen because many people do not plan their estate well.
 
Finally, if we look at integrated financial planning, wherein we need to do a need-based analysis of somebody's understanding of how he or she should actually look forward to the future, then definitely a certified financial planner's role is extremely crucial.
 
So to sum up, it's quite easy to create wealth; however, it is really difficult to sustain it and grow it in the long run. And that's why financial planning becomes really important. I would say that financial literacy is not a luxury anymore. It's a fundamental right for all of us.
 
 

Tell us about the basic tenets of financial planning.
 

Normally, we think about financial planning as a demand, but it is actually a need for us. When we talk about financial planning, we refer to it for the long run because it is not something one can do today and then forget tomorrow. It is about your tomorrow and your family's future. Ultimately, it becomes really important for us to plan it in the right way.
 
The first thing in financial planning is to consider an individual's needs. One should understand the needs that this person has—what kind of plan will suit her or him. What are her or his investments—the risk appetite? Now, the risk appetite differs from one individual to another. So, it should be customised to cater to the individual.
 
For example, if I'm a 25-year-old boy who has just started my career in the industry, I have a higher risk appetite and a longer number of years to invest in the markets. So, I might look at 90% equity and 10% of other investments. On the other hand, if, say, I'm 55 years old and I'm looking forward to retirement now, I would just turn it around. I would like to have more money invested in debt funds and less in equity because my risk appetite is lower.
 
However, in many cases, age is not the determinant; sometimes it is more about how one should remain invested. If you look at investor psychology normally, they indulge in herd mentality, wherein if X is invested in some stock or any other security, Y will also like to do the same. However, this should never be followed, as each individual's needs, aspirations, way of living, dreams, and desires are different, and here, professionals or financial planners play an important role.
 
 

How aware are women and youth of our country today?
 

Women are great at managing finances and running their households in a just and efficient manner. In the majority of Indian households, women manage everything with whatever money they get from their husbands. However, understanding financial planning, which is more scientific now, is something they should look forward to. That awareness is still not there. There is a lot of work that needs to be done. Youth also, interestingly, are not very clear about a lot of things.
 

What is the role of the FPSB in inculcating awareness about financial planning in India? What are your initiatives in this regard? And what are your future plans? Also, what are the impediments to raising awareness about financial planning?
 

We have made a lot of efforts to ensure that people understand the importance of financial planning. We are looking at doing a lot of activities. Practically, we are looking at educating people at large by working with good business schools, universities, and schools to make people understand the importance of finance. We are also planning to do a lot of activities when it comes to ensuring that industry is there with us, because ultimately, industry will help us tremendously. We expect that they will hire people who have completed the Certified Financial Planner course, which will create an environment of trust among the people. This is because institutions such as mutual funds and banks have a lot of MBA graduates, but the number of certified financial planners—the people who are qualified to plan finance—is very low.
 
So that's our job; we will create a very strong workforce of people who can actually go ahead and help people at large because, when we look at this noble work, it is about helping people and their families. If I help one individual, who has a family of four people along with that person, I'm actually making an impact on at least four to five lives. Imagine having 40 million people in this country, and we have hardly 2,517 financial planners today. So, the opportunity is pretty large. And we will look at educating them. We'll be looking at working with industry, academia, and regulators wherever we can support them.
 
 

FPSB recently introduced investor psychology into financial planning practices. Tell us about it in detail.
 

What we want to do through psychology and related activities is understand people's behaviour, needs, goals, risk appetite, and also their needs. We also need to understand what they actually want in their lives and how we can help them in the future. Many Indians are generally risk-averse. They don't want to get into the market thinking that the market will not give them the right returns, or maybe they'll erode whatever they have with them, which is a big challenge. People, if they don't have money, will obviously never be able to invest. However, people who have money still do not do it. If you look at the current population today, there are 40 billion people, out of which hardly two to three per cent are actually invested in the market, which is such a small fraction of the total population.
 
So more education and a lot of awareness are needed. We also feel that a lot of people get into herd mentality. This needs to change. And we are here to take care of that with our student methodologies and tested ways of creating a financial plan. Based on customer psychology and the customer's behaviour, we create a plan that will help them in terms of ensuring that they do not burn their money and do not get into a situation wherein they will face a difficult time when they retire.
 

What's the biggest difference between India's middle class around 10-15 years ago and today's?

India’s middle class has grown by leaps and bounds in the last 10–15 years. The purchasing power has gone up dramatically, and the people’s quality of life has also witnessed a steep upgrade. What was considered a luxury around 10-15 years ago has now become a necessity, be it washing machines, ACs, or LED TVs. As people become more aware, they look for quality and a better standard of living. Customer satisfaction has become the utmost priority.

People who are in the lower middle-class strata or below are much better off today than their counterparts some 15 years ago. This is one of the significant changes that India is witnessing. We have more money to spend, and we have more access to money, whether it is through loans, credit cards, or the earnings that we have, and this has led to increased awareness of the importance of finance among them.

India is graduating, which is a positive sign for all of us. The upper middle class is moving towards the richer class, the middle class is moving towards the upper middle class, and the lower middle class is moving towards the middle and upper middle sections.

These people are the future of this country. We have the youngest population in the world; the average age is below 28.4, and I can say with full faith that we are going to produce the world leaders of tomorrow. This younger population comes from the middle class with high passion, enthusiasm, and quality education.

Education has played a pivotal role in bringing about this change. Besides, effective measures taken by the government and various other statutory bodies, as well as the people of this country, have helped in its growth.

Does financial planning have an impact on creating a robust financial market since it would involve a lot of investment by individuals?

Financial planning is a wholesome activity that will have an impact on each and every stakeholder. If we look at the ecosystem in this country, from customers to the markets and to the regulators, everybody is involved: there are mutual fund distributors, there are organisations that are giving financial products, and there are people who are there to help people at large, like the Certified Financial Planner professional.

So, this particular ecosystem will definitely be impacted by financial planning because once more individuals start doing it, we will see them moving ahead, coming ahead, and actually investing in the market.

Currently, only three per cent of Indian households actively invest in stock markets, so the scope is huge. And financial planning will create a pathway for that. The other thing is that when more people invest money, they will have more money to spend in the country.

Hence, I believe financial planning will have a positive impact on the financial markets of tomorrow. Our efforts and activities will have a positive impact on each and every individual. We would like to help people and ensure that we are able to impact lives in the future.