The level of financial literacy of many citizens is still very low
In Russia, according to official statistics, consumption has been growing at a very rapid pace since the beginning of 2024. Thus, Rosstat at the end of March published data that the consumer sentiment index (a conditional indicator compiled on the basis of population surveys showing how confident citizens of the country are in increasing their incomes and how ready they are at the moment to make large purchases and save money for the future ) in Russia in the 1st quarter of this year increased to a record high. More precisely, to the stable level of 2013, which is the maximum in the entire history of observations. At the same time, the number of Russians who are ready to spend their increased income on large purchases turned out to be greater than the number of Russians who are ready to save part of their income in a bank or non-state pension fund for the future, although not by much. Also, according to Rosstat, retail trade turnover for January-February 2024 (the most recent data) in Russia increased by 10.7% in annual terms, amounting to almost 8 trillion rubles, and in February of this year alone it increased by 12. 3% by February 2023, exceeding 4 trillion rubles. And these figures also indicate that consumer demand of Russians at the beginning of this year showed very rapid growth, which, accordingly, makes a significant positive contribution to the increase in GDP this year.
When you get acquainted with such statistics, you remember either the words of Arkady Gaidar from a children's book — “Live and work — a good life!”, or Mayakovsky — “Both life is good, and living is good.” But there are other macroeconomic data, which, after careful comparison with the beautiful statistics given above, raise a number of questions. For example, why, with such high interest rates on deposits in the most reliable banks (16-17% per annum with annual inflation of 7.7%), a significant part of Russians prefer to spend an additional part of their income instead of saving for the future? And most importantly: why, with such high rates on consumer loans “for any purpose” and at the same time growing incomes of the population, the volume of consumer lending still continues to grow?
According to a study by the Bank of Russia, in February 2024, the volume of consumer loans issued in the Russian Federation increased by 0.9% compared to January, exactly the same as in January compared to December 2023. At the same time, in the first two months of this year, Russian banks issued consumer loans to the population totaling 251 billion rubles, which turned out to be higher than the average for the same period over the last three years. And this result was achieved despite the fact that in December last year the key rate of the Central Bank of the Russian Federation was raised to 16% per annum, and during the first months of this year, interest on consumer loans soared to an average of 28.4% per annum.
So, Russians are still willing to take out insanely expensive loans and then spend a significant portion of their income on servicing them, instead of putting part of their income into the bank for future large expenses and earning high interest rates. But why? After all, people turn to the bank for consumer loans, clearly not because they have a good life, but because they don’t have enough money. Does this mean that the well-being of Russians is not at such a high level as statistics show? We need to understand this paradox…
It would be wrong to conclude that Russians, given such high interest rates on deposits, refuse to save for the future. By the end of February, according to the Central Bank of the Russian Federation, individuals had more than 46 trillion rubles on deposits in Russian banks. This figure, for comparison, is 20% higher than the total official retail trade turnover in Russia for 2023 and equals almost 27%, that is, more than a quarter, of Russian GDP. Moreover, official statistics do not take into account those Russians who still keep savings in foreign currency at home “under the pillow”, like ten years ago, when ruble interest rates were low. That is, as we see, there are a lot of Russians who want to save money on ruble deposits, and this suggests that high interest rates on deposits play a positive role in the growth of savings and, ultimately, in the fight against rising inflation.
< p>However, according to a population survey conducted by the InFOM agency, the share of Russians who prefer not to spend, but to save an additional part of their income, although it increased in March of this year by 0.6 percentage points compared to February to 53.9%, but at the same time decreased by 3.4 percentage points compared to March 2023, despite the fact that interest rates on deposits at the beginning of last year were several times lower than today. In our opinion, the growth in consumption is due to the fact that in 2023 Russians’ incomes began to grow significantly for the first time after a decade of almost continuous decline, with the exception of a couple of years when real incomes did not fall, but did not grow either. As real incomes grew, coupled with high interest rates, people were encouraged not to spend everything, but to save part of their income for the future. But just 3-4 years ago, according to surveys by the InFOM agency, more than 60% of Russians had no savings at all. And this was due to both the negative dynamics of household incomes and low interest rates.
Since the country has been living in very difficult economic conditions since 2020 (first the coronavirus pandemic, then sanctions), it is not surprising that many Russians, in addition to their main job, also have additional employment and, accordingly, additional income. Many Russians take full advantage of the opportunity to earn additional income, for example, from investing in securities, renting out property, part-time work, and, in the last few years, also from self-employment. These are variable incomes that a person receives either for a limited period of time, or their value changes monthly, either upward or downward. Despite the instability, these additional incomes allow some Russians to spend more and others to save more for the future, depending on how inclined an individual or an entire family is to save for a rainy day. Therefore, such an unusual situation from the point of view of economic theory could arise when consumption grows simultaneously with savings. Still, monetarists assumed, and many of their theories are based on this, that every person or household has at least small savings for the future. And the situation when almost two thirds of the population of a huge country have no savings at all did not fit into these concepts.
Nevertheless, the question of the growth of consumer lending, even at high interest rates, does not yet have a clear answer. On the one hand, data showing that only slightly more than half of the population in Russia has savings suggests that wages are not rising in all sectors of the economy, but only where there is a shortage of personnel. And in industries where wages have stagnated, a significant portion of wage earners and their families still live paycheck to paycheck, unable to save for the future. Accordingly, many citizens and families in this situation are even forced to take out bank loans, apply for credit cards or even take out microloans, which many people, unfortunately, simply use for food, since there is not enough money even until the next salary.
On the other hand, it is possible that there is no need to look for a logical explanation for such a situation at all. Simply because the level of financial literacy of many Russians is still very low. Therefore, it cannot be said that a stable model of economic behavior has already developed in the Russian Federation, as in Western countries, where households, under any circumstances, having received additional income, first save part of such income in the bank, and spend the remaining money on large purchases, recreation, and entertainment … In Russia, the market economy is still developing, and a model of rational economic behavior for people and households has yet to be formed. And from this point of view, the high key rate of the Bank of Russia, like the high interest rates of banks on deposits, fulfills, in addition to its main task of fighting inflation, also a certain “educational” task — creating an opportunity for the population to accumulate a “financial safety cushion” for the future and restraining individuals from excessive debt exposure.