Is India's Education System killing its Economy?

As little kids, we were told that marks are all that matter and if you don’t score well, you won’t be able to survive in this cruel world. That, you will be considered dumb. That, you will have to live a mediocre life in the best possible scenario. And we were given examples of people next door who did not study and are struggling and suffering now. 

What if, instead, we were told to study the life of Steve Jobs, who without a college degree, created Apple; Walt Disney, who had formal education only till 16, Ellen DeGeneres, who didn’t need a degree to tell her that she is humorous; Mark Zuckerberg, Jack Dorsey, Oprah Winfrey, Madonna, Kanye West, Vin Diesel, all the same. 

“But beta, things work differently in foreign countries.” To that, I say, Sachin Tendulkar, Mukesh Ambani, Gautam Adani, Aamir Khan, Azim Premji, Mary Kom, and Smriti Irani. Good enough for ya? 

These people did not earn their wealth because they were outstanding in studies, but rather chose to break the chains of this so-called ‘contemporary education system’.

You put paper after paper through a xerox machine, and in some papers, the print is extra dark and overwhelming, while in some, it is so light that you could barely read the letters. It is not the fault of the paper, but of the machine. 

The Indian Education system is structured such that, every student is made to rote the same course, take the same exams, do the same activities, and are judged the same. The logic that is taught in schools is called "holistic", but boy, it is nothing more than rudimentary. 

For example, do you remember being taught anything remotely related to money or personal finance? Do you remember being taught how to do budgeting? Or the importance of starting investing early? Or how should one file their ITR? 

There is a sentence in the book Rich Dad Poor Dad by Robert Kiyosaki,

One of the reasons the rich get richer, the poor get poorer, and the middle-class struggles in debt is that the subject of money is taught at home, not in school.

What is actively taught in schools is rote learning while in essence, they should promote critical thinking and problem-solving skills. 

How does all of this affect the economy? - you may ask.

As of July 2021, the dropout rate at the secondary school level in India is over 17%.  While a lot of children drop out because they have to shoulder and share their household responsibilities, a lot of others do because they simply couldn’t keep up with the burden of learning uninteresting subjects. The below graph shows the major reasons why children drop out. 

This not only drops the literacy rate of an entire country drastically but the learning curve is disrupted as well. As a result, the supply in labour class increases, and their wages fall, thus leading to a poor standard of living. It’s a cycle, you see?  What if instead of pushing trigonometry on a child, they were taught how to budget the pocket money they received? 

Only if you had a tool that could do it all for you, no? Planning emergency fund, debt analysis, insurance planner, spending habits, everything! 
Below, we will discuss 7 personal finance skills everyone should be a pro at. 

Top 7 Personal Finance Skills

1. Budgeting

We at Finology, have long emphasized the point that your expenses should be income minus savings, and not the other way around of saving whatever is left behind after your expenses. Let’s go through how to create the most effective budget.

• Step 1: Know your Income - If you have various income sources, it would be wise to calculate the total income from all these sources. Or if you are a freelancer or are paid on a project basis, calculate the average income you have received in the past 3 months.
• Step 2: List all of your debts - This includes home loans, student loans, credit card debts, and everything. Add them up.
• Step 3: Fixed Expenses - This includes expenses such as rent, food, utilities, insurance, and petrol. Add them up as well.
• Step 4: Entertainment Expenses - This includes the amount you spend on shopping, dining out, OTT subscriptions, etc. You know what to do with these, right? Add them up. 
• Step 5: Savings - Save with a goal in mind. Calculate how much money you will need to buy a thing, how much time you have to collect the sum, and accordingly find out how much of your income you will have to save for it. 
• Step 6: Simple Maths - Now, all you have to do is deduct the amount to be saved from your income and the remaining amount should cover all of your debts and expenses that you found out in steps 2, 3, and 4. If it falls short, find out the leaks or deduct something from your entertainment expenses.

2. Needs vs Desires

You must have heard about Maslow’s Hierarchy of Needs. If not, this is going to be interesting. Maslow said human beings are believed to have 5 different kinds of needs. These 5 needs are categorized either as psychological or material needs. The most basic human needs are material needs - food, water, clothes, and shelter. Once these needs are met, we have safety needs for bodily security and protection from attack.

As we go up the hierarchy, we start to develop psychological needs. This is when we move from ‘needs’ to ‘desires’. And we can surely cut down expenses by keeping our desires in check. 

3. Understand the Power of Compounding

Suppose you start by investing ₹1000 at a compounding rate of 10% p.a. By the end of the first year, you will have ₹1100. Now for the second year, this ₹1100 will be the principal amount, and 10% interest on it will be ₹110. By the end of the second year, you will have ₹1210. In 10 years, you will receive an interest of ₹1,594 on the initially invested amount of ₹1,000 and the actual value will be ₹2,594. 

If this same amount was invested for the same duration but at a rate of 10% simple interest, you would have only received interest of only ₹1,000.  

This, right here, is the power of compounding. 

4. Importance of Investing early

Money, when kept locked away in ghar ki tijori, will lose its value eventually. It is important to invest to cover inflation as well as to grow the money. There is no rocket science in figuring out that the earlier we start, the better. 

5. Understanding debt and credit 

The reason most people spend their whole life paying off a debt they took in their 30s is that they keep paying the minimum balance when they really should be cutting down all other expenses and paying off the loan amounts as much as they could. To top this off, they also have credit card debts that keep on accumulating because they couldn’t pay in full and now they have to pay interest on that as well. 

6. Understanding how banks work

How to open a bank account? What is a minimum balance? What are interest rates for borrowing and lending and how do they work? What does it mean to overdraw? What is an overdraft? What is an appraisal? What is collateral? 

If you don’t know what all of these are, I suggest you Google them right away!

7. How to do taxes

The government levies taxes on a person’s taxable income. Taxable income is defined as the income of an individual minus applicable tax exemptions. This process is a bit complicated, and this is exactly why you have a CA. But, you must know under which tax slab your income falls and legal ways to save taxes. 

You can claim up to ₹1.5 lakh of deduction under Section 80C for various heads such as investments in PPF, ELSS, EPF, SSY, Premium paid for Term Insurance, and repayment towards the principal amount of home loan. 
Under Section 80D, you can claim a deduction on the premium paid for medical insurance.
If you have an education or home loan, you can claim a deduction on the interest paid. 

The Bottom Line

Every person connected to the Indian education system knows these problems exist and are deep-rooted and have to have a solution. Every parent knows it is not wise to send their super creative child to advanced Maths classes but they would do it anyway. There are so many avenues today that a child can choose whatever he/she likes and still be successful. Have Three Idiots taught you nothing? It is still not too late. It is never too late. We have a bundle of special tools that will help to plan everything literally.

Recipe does it all for you!