To make the concept clear, let’s begin this article with a story.

 

Once upon a time, in Arabia, there lived a man named Abdul. One day, while he was passing through his village, he noticed a lot of camels on the roadside. One of the camels looked upset and seemed uncomfortable because of a big bulge on its neck. Abdul didn’t know a melon was struck in its throat.

 

While Abdul was staring at the camel, the camel’s owner came up and noticed the big bulge on his camel’s neck. The owner wasted no time. He tied a piece of cloth around the camel’s neck and struck it with a cane. The melon inside the camel’s neck was broken by his strike and the camel seemed relieved eventually.

 

Adbul was astonished. He thought he learnt something great from this experience. Deep inside his heart, he believed that he just got a ticket to the millionaire’s club. To make a practical usage of his newfound knowledge, Abdul went to the next village situated on a hill.

 

There he announced to the villagers that he had found out a cure for goitre. He also demanded a few thousand rupees and a soft piece of cloth from those who want to get rid of their goitre.

 

During those days, a treatment for goitre hadn’t been discovered. So, the arrival of a man with a treatment for goitre excited the villagers. They gathered around him, and an old lady with goitre came forward. She handed over the money along with a soft piece of cloth and asked Abdul to cure her goitre.

 

Abdul was overjoyed: he got his first patient. He accepted the money from the old woman and took the piece of cloth from her. Abdul wrapped the soft cloth around her neck. Then, he took a cane and struck it hard on the old woman’s neck. Woman was too old to bear such a smack. She fell down and died on the spot.

 

The mob turned angry and began to beat Abdul. The villagers, done with their hitting and beating, gave out an uncommon punishment to Abdul for killing an old woman in their village. They asked Abdul to dig a grave for her.

 

As this village was situated on a hill, digging a grave was a mammoth task. Abdul took two days to dig the grave and to bury the old woman.

 

Abdul didn’t learn anything from this painful experience. He set out for another village. Again, he announced a cure for goitre to the villagers. The news spread like wildfire and villagers gathered around him. This time an old man with goitre stepped forward with the money and a soft cloth.

 

Abdul wrapped the cloth around the old man’s neck and got ready to strike it with a cane. Suddenly, a second thought struck his head. Abdul stepped back and looked around.

 

“I’ll cure this old man but only on one condition,” shouted Abdul.

 

“What’s the condition?” the villagers asked Abdul.

 

“You promise me that you’ll not ask me to dig his grave,” replied Abdul.

 

This is how half-cooked knowledge works. This is how half-cooked knowledge risks yours as well as others’ lives.

 

Our Half-Cooked Knowledge Of Finance

 

India accommodates roughly 20% of the world population. The Indian population has a literacy rate of 74% but only nearly 25% possess financial literacy. These statistics have been revealed by a recent survey conducted by the International Bank for Reconstruction and Development and World Bank. However, the higher financial illiteracy rates prevail among almost every country in the world.  

 

Half cooked knowledge in any area of knowledge is dangerous, particularly, in finance. Most people think they can gain financial knowledge by experience, observation or by simply copying others. For this reason, they venture into any business either because it is popular, or they have seen it generating higher returns for someone else. They forget the fact that venturing into unknown territories, particularly without careful planning and study, is usually dangerous.

 

The Solution

 

The 21^st century began with an Information Technology explosion. Today, we are living through an Information Age surrounded by endless information and knowledge to digest and utilize for our personal, financial, and professional needs. But still, we fail to make wise financial decisions. Why?

 

Again, a narrative to make the concept clear.

 

One day, Rahul requested his friend, Vysakh, to invest in his flourishing computer software and hardware development business. For a wise opinion, Vysakh ringed his father who was enjoying his retired life.

 

Vysakh’s father listened patiently to his son’s future business plans. After listening, he asked Vysakh a simple question: “Vysakh, do you know how to develop a computer software and to fix its hardware problems?”

 

Vysakh answered ‘no’.

 

“Son, then never invest in that business,” advised Vysakh’s father. 

 

Vysakh’s father, in truth, gave out a billion-dollar advice to his son. Even billionaire investors like Warren Buffet never invest in a business they cannot understand. In today’s world flooding with information and knowledge, comprehension and meticulous application of knowledge always takes a backseat. It is similar to possessing half-cooked knowledge which is more dangerous than ignorance.

 

Some of the areas of finance such as lending, banking, investing, even the concept of money itself have been around, in one form or another, since the dawn of civilization. But finance emerged as a separate field of theory and practice diverging from the field of economics in the mid-20^th century. That means, Finance is a new field of knowledge for us. We can’t blame our educational system or our financial system for not bestowing us with financial education or financial literacy.

 

Conclusion

 

The Reserve Bank of India (RBI) recently launched the National Strategy For Financial Education (NSFE) 2020-25. It aims at inculcating financial literacy among the population, encouraging their financial discipline and motivating their participation in financial markets.

 

Apart from all these initiatives from government and non-governmental organizations, it is our sole responsibility to acquaint ourselves with financial concepts, inculcate financial discipline and to make wiser financial decisions. The earlier the better.

 

It should be apt to conclude this article with a Samuel Johnson quote: “A little knowledge is a dangerous thing – it only hastens fools to rush in where angels fear to tread.”

 

– Justin Raj

 

Alpha Research Team