Consumerism Reaches Russia and Leaders Respond with a Financial Literacy Push
By Dan Kadlec
July 26, 2018
MOSCOW—Directly across Red Square in the shadow of the Kremlin and St. Basil’s Cathedral sits the Gum mall, a large shopping mecca boasting brands from Dior to Vuitton. You can buy a bag from Prada or sunglasses from Gucci, or just gather yourself at the Beluga Bar over black caviar. And it is busy. Very busy.
Consumerism has found its way to Russia, and not just at the mall. Tourists travel to this city rich with culture from many countries, and the government likes what it sees. Shortly after the World Cup final here on July 15, President Vladimir Putin announced that the hundreds of thousands of football fans visiting from other countries may keep their “fan pass” credentials and return without a visa anytime they like through the end of the year.
The economy is opening, and with this change has come a proliferation of choice and individual responsibility unfamiliar to most Russians. Unsure how to manage the transition to a market economy, officials in 2006 began investigating financial literacy programs as a partial solution.
“We thought our problems were unique,” says Anna Zelentsova, strategic coordinator of Russia’s Financial Education and Financial Literacy Project. “We were surprised to learn that developed nations also have problems like low savings rates, insufficient emergency funds, and reliance on payday lenders.”
I spoke with Zelentsova, who is also a member of the OECD advisory board on financial education, at the Four Seasons Hotel, a short walk from Red Square. She described a leadership that believes firmly in financial literacy as a cornerstone of the national plan to speed the development of markets and an economy where individuals do not rely so heavily on the government for their long-term financial security.
In 2011, after a half-decade of studying other countries’ financial education efforts, Russia introduced a variety of pilot programs targeting every age group. In 2017, Russia became one of about 60 nations with a formal national strategy for financial literacy. These nations generally have come to understand that a money-wise population will help their economy grow, minimize the effects of downturns, and shore up retirement savings. Russia committed $130 million over five years, largely to develop programs and curricula, train teachers and print 8 million textbooks that were revised and distributed this year.
So, the real push is only beginning, and it promises to be a lengthy undertaking. Russians have low levels of financial understanding. Just 59% trust banks and more than 60% are not willing to take responsibility for their financial security, according to the Financial Education and Financial Literacy Project. Only one in five believes they will be dealt with fairly in the financial markets.
Past experiences may validate these concerns. Over the past decade, many Russians tiptoed into the mortgage market. To get the lowest rate, they commonly opted for a mortgage denominated in a foreign currency. When the ruble collapsed amid a decline in oil prices in 2014 these mortgage holders were wiped out. Falling oil prices prompted other oil-rich nations to rethink their economy, too, and embrace financial education.
Russians also have no obvious incentive to save. This has traditionally been a managed economy where individuals pay no income tax. The burden is entirely on employers. Individuals have little idea how much the government collects and how much they contribute through lower wages. In such an environment, encouraging retirement saving is difficult. Tax-advantaged accounts like 401(k) plans and IRAs are of no use where…
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…workers do not distinguish between pre- and post-tax income.
With Russians shopping more, especially where it concerns a proliferation of financial products such as insurance, bonds, and—to a lesser degree—stocks, consumer education and protection is a primary focus. Contrary to the U.S., where the Consumer Financial Protection Bureau is being reined in, Russia is strengthening its consumer protections.
Consumer issues are one of four pillars girding the national strategy for financial literacy. The other three are understanding risk and reward, the role of an emergency fund, and managing credit. The country has specific goals in all these areas.
In coming years, the national strategy will also incorporate goals around understanding bank deposit insurance, avoiding financial scams, and profiting from compound growth over long periods of time, Zelentsova says.
Russia has programs to reach workers and retirees through TV and social media campaigns and events like national savings week. But, says Zelentsova, “the kids are most important.” More than half of the nation’s financial education resources are devoted to reaching kids in school and through things like entertaining cartoons with a message. They have a national mandate that financial literacy be incorporated into every child’s school day.
There are signs it is working. In a 2015 assessment of 15-year-olds financial know-how, Russia ranked 4thamong 15 nations—ahead of Australia and the U.S., both of which have robust financial literacy resources. In this assessment, Russia showed the biggest gain of any country compared to the 2012 assessment.
“We are very proud of what we have done,” says Zelentsova. She knows it is only a start. But as tourists in the window mill around Red Square and the Gum teems with shoppers, she also knows it is long overdue.