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Russians find bankers unfair

Almost two-thirds of Russians use financial services. With this, however, the public’s level of financial literacy is low overall, and there is no convincing evidence that people are interested in improving this. This is largely due to the fact that the information presently available on financial services is complex and difficult to understand, according to experts tasked by the Russian Finance Ministry to conduct the first base survey on the financial literacy level and competence of the Russian public

The Finance Ministry and the research center CJSC Demoscope published the results of a survey on the financial literacy and competence of the Russian public. Demoscope conducted the survey in 2012 as part of a joint project between the Ministry of Finance and the International Bank for Reconstruction and Development (IBRD) called ‘Raising Financial Literacy and Developing Financial Education in Russia.’

The authors of study – Dean of HSE’s School of Economic Sociology Dilyara Ibragimova, Professor in HSE's Faculty of Sociology Olga Kuzina, and Demoscope CEO Mikhail Kosolapov – tried to find out in as much detail as possible what Russians’ financial position and the source of their income looked like, as well as how large the disparity was in the wages of the poor and the rich. The sociologies also identified the magnitude of the public’s savings and debt and analysed people’s financial and nonfinancial assets.

The research was carried out in the form of a nationwide survey on a sample of 6,000 individuals. In addition, surveys were conducted in two experimental regions – Volgograd and Kaliningrad regions – and two control regions – Orenburg and Yaroslavl regions. The sample size in each region was 1,500 people.

The researchers' goal was to measure Russians’ financial literacy, identify problem areas, and evaluate the efficiency of the programmes being carried out. In the study, the idea of ‘financial literacy’ encompasses knowledge about the financial market and financial services, as well as a selection of competencies:

  • Money management (budget management, bank statement review, savings regularity, etc.);
  • Long-term planning (saving for both expected expenses and rainy days, insurance, pensions, savings for children's education and major purchases, etc.);
  • Choosing between alternatives (using financial services, informal forms of savings and loans, risk attitudes, awareness of existing financial products and their characteristics, sources of information, the ability to read a contract before signing, etc.);
  • Awareness (of the situation in the economy, of new financial products and services, as well as of changes in the terms and cost of existing services, knowledge about where to obtain independent financial guidance and where to file a complaint);
  • Motivation.

Banks running campaign against financial illiteracy

It was found that for most Russians, bank employees are the main source of knowledge in the field of personal finance. Some 45.3% of respondents believe that it is the employees in the front offices of financial organizations that are best at providing information on various financial matters. 'If the seller of the services is the only source and interpreter of information for consumers, then this could lead to a conflict of interests,' the authors of the survey warn.

Following the bank employees as sources of knowledge were independent financial advisers (34.9%) and the media (29.4%). And even fewer respondents said they turned to the Internet or relied on 'word of mouth' to gain financial literacy.

Consumer protection organisations and independent financial advisers have the greatest impact on consumers of financial services and representatives from the higher income groups of the population (with an income of more than 16,000 rubles per person per month). In addition, students often trust university economics professors more and the media less.

Experts are concerned that 65% of Russians do not feel the need to obtain more information on financial services, which rather suggests a low level of financial literacy. One-third of the respondents complained that the information available to them is presented in incomprehensible language. The authors do not rule out the possibility that it is specifically a shortage of clear and reliable information that discourages the public from delving deeper into the financial services presented to them.

Untrusting, but ready to pay

Despite the fact that most Russians see front offices of banks as the main source of information on financial services, Russians do not trust bankers. Only 19.3% of respondents believe that a dispute would be resolved fairly if it arose between them and the bank. Among those who use financial services, this percentage is slightly higher – about 22.5% – and for those who do not use financial services, it is lower at 15%. In addition, if they find they have been deceived, only 37.8% of lower- and middle-income groups are ready to go to court. The former include Russians with an income of less than 9,000 rubles per person per month, and the latter – those whose per capita income is 9,000-16,500 rubles per month.

At the time of the survey, 69.2% of Russians used financial services. Some 18.8% of the Russian public took out bank loans (excluding mortgages and credit cards, about which respondents were asked separately), but when considering everyone who has taken out a loan over the last five years, this proportion increases to 25.7%. Roughly three-quarters of respondents (79.3%) over the age of 18 were firm in saying that bank loans should be repaid regardless of personal circumstances.

Some 65.9% of respondents said they saw a link between risk and return (the higher the return, the greater the risk) when purchasing a financial product. It was also found that Russians, especially those who use financial services, are entirely proficient in financial arithmetic, that is they are aware of simple and compound interest, are able to calculate it, and are also familiar with the concept of the real interest rate. Nevertheless, only 23.8% of respondents from lower and middle-income groups said they compared alternative offers when purchasing financial services.

In the event of possible losses on the financial market, most of our fellow citizens said they were hopeful the government would provide assistance. For example, only 40% of respondents from lower and middle-income groups of the population understand that losses on financial market transactions are their own personal risk and responsibility.

Knowing does not mean doing

The study showed that Russians are well informed on matters relating to the pension system. Almost 70% of respondents are aware of the possibility of voluntary pension contributions, and over 80% know about the state system for co-financing pensions.

Knowing, however, does not mean doing. Only about 3% of Russians make voluntary contributions to private pension funds. Approximately 3% participate in the government co-financing programme for pensions, and the same amount said they planned to take part in it.

About half of respondents (48.9%) do not make voluntary contributions due to a lack of money, and 42.8% said they did not trust pension funds. In addition, people have rather strong paternalistic attitudes – 46.2% of respondents said that the responsibility for adequate pensions lies with the state.

Of those currently working, only a handful have savings for old age. Only 28.6% of lower and middle-income groups, for example, are planning to use their own savings when they reach old age. Most future retirees plan to rely not on financial institutions, and not even on the state, but on their own efforts – 58.3% of working age respondents indicated that they planned to work after retirement.

In addition, not many respondents said they thought about having a ‘financial buffer’ for unexpected crisis situations – only 29.5% of Russians above 18 are trying to save for a rainy day.

Educating on the state's tab

In addition, the researchers found that just 35% of Russians behave prudently when signing contracts with financial institutions. This figure did not change throughout the entire period of observation between 2009 and 2013. One in every ten Russians signs a contract without reading it, while every fifth reads it, but signs regardless of whether he or she understood the text entirely or not. Some 27% of Russians do not have experience signing contracts with financial institutions.

The public's financial illiteracy, according to the authors, not only adversely affects the welfare of citizens, but can also harm financial markets, as unprepared investors are more prone to panic, ill-informed borrowers cease to service debts, etc. This all leads to an increase in dishonest competition and speculative sentiment. Therefore, it is not only consumers themselves who are interested in improving financial literacy, but also companies and governments. Many countries have already developed and adopted national programs or strategies to improve the financial literacy of the public.

The experts believe that financial education programs should be divided into two levels: first level programs should raise interest in the subject, and when interest is generated, they should begin training programs. To ensure that the information being disseminated is clear, it is necessary to test educational materials on focus groups made up of the categories of people to whom they are addressed.


Author: Гринкевич Владислав Владимирович, October 29, 2014