Financial literacy and responsible financial behaviour of Russian households
Valentina Zvereva (MSU), Andrey Sinyakov, and Tatyana Shelovanova
At the end of 2023, Russia updated its Strategy for Improving Financial Literacy and Developing Financial Culture Until 2030. Unlike the previous strategy, the current strategic goals include not only financial literacy but also financial culture. ‘Culture’ is normative and socially preferred behaviour. The updated strategy brings into focus the relationship between financial literacy and responsible financial behaviour.
To explore this relationship, the authors rely on data from the All-Russian Survey of Consumer Finance (2020 and 2022).
Socially responsible behaviour includes:
- consumption smoothing, driven by time-varying household incomes, through saving behaviour or demand for loans. In particular, retirement planning is a desirable consumption smoothing strategy in the course of a lifetime.
- asset diversification, that is a variety of assets intended to eliminate unsystematic risk from the investment portfolio, thereby reducing income fluctuations.
- informed and calculated financial decision-making based on the analysis of information and the correct perception of macroeconomic trends (as well as confidence in the future).
- non-speculative investment and a low/moderate debt burden.
The measurement of responsible behaviour is based on 53 indicators, which are merged into ten groups used to calculate an aggregate responsible financial behaviour index. The financial literacy index is based on questions intended to measure levels of competence in mathematics and economics.
The variation of responsible behaviour is explained by means of competing financial literacy indicators such as level of education, financial experience (including in financial crises), and personal preferences (risk appetite, planning horizon and future discounting, self-confidence and optimism). Other standard socio-demographic control variables are also included.
The authors use a set of instrumental variables to address the problem of the endogeneity of financial literacy, which distorts the understanding of potential causal relationships.
The results show that the financial literacy index is statistically significantly and positively correlated with the aggregate responsible financial behaviour indicator. Furthermore, the overall level of education is also significantly and positively correlated with responsible financial behaviour. In terms of numbers, a move from secondary to higher education comes with a smaller increase in responsible behaviour compared with a move from full financial illiteracy to full literacy.
Of the ten components of responsible financial behaviour, financial literacy is expectedly positively correlated with saving activity and asset portfolio diversification. As financial literacy improves, the perception of macroeconomic trends, such as estimates of past inflation, ruble exchange rate movements and deposit rates, becomes more accurate. The relationship with retirement planning other than investment in non-governmental pension funds turns out to be negative. Of the personal characteristics, notable is the positive correlation between risk appetite and retirement planning. In general, improved financial literacy at the individual level can help smooth out consumption (by diversifying savings) and, at the macroeconomic level, foster economic development and the development of financial market instruments.
Neither speculative investment nor an excessive debt burden has a statistically significant relationship with financial literacy. A statistically significant negative relationship would be good news. Financial culture in these aspects of financial behaviour may be shaped through targeted action rather than through a broad financial literacy programme.