As safe as the bank? : household financial behaviour and economic reasoning in Post-Soviet Russia

ABSTRACT This study examines the financial behaviour of Russian households from the collapse of communism to the financial melt down in August 1998. By transforming household savings into productive investment, financial intermediaries are important to economic growth. In post-Soviet Russia, financial intermediaries increasingly found themselves unable to attract new household savings, as people turned to foreign currency. What determined the allocation of household savings? The study considers the three main alternatives households could turn to: The state savings bank, Sberbank; commercial financial companies; and foreign currency, mainly dollars. Why do people do what they do? And why does that question matter to anyone interested in explanation of economic phenomena? Economists usually assume that people are rational in the sense that they maximise returns on their assets. If that is true, the financial behaviour of the population simply reflects changes in economic variables such as interest rate, exchange rate and inflation. However, such a view fits uneasily with the fact that there was a surge of new financial companies from 1992 to 1994, when inflation was rampant and real interest rate negative; that commercial financial companies then experienced sharp decline, whereas Sberbank kept its position until 1996; and that Russians turned away from financial intermediaries of any kind in the macroeconomically stable period from 1996 to 1998, increasingly saving in cash dollars, leaving billions of dollars in mattresses and pillows and out of productive investment. In contrast to the economic approach, Russian economic sociologist Denis Strebkov has claimed that household savings in Russia “are used inefficiently, from a private, as well as from a macro-economic point of view.”But why would people not allocate their savings in the most profitable way? This study holds that to understand why people do what they do, we should listen carefully – although not uncritically – to what they say and how they say it. On this view, we can explain behaviour only when we understand individual actors. And – since social phenomena are constituted by the behaviour of individuals – such understanding is crucial to the causal explanation of macro level phenomena.The historical narrative thus becomes an important vehicle for explanation of the contemporary world. Through analysis of discourses on financial institutions, as they appeared in newspapers of the day and as I have been able to gather from interviews conducted in 2004, this study identifies certain dramatic events that altered the way Russians perceived different financial institutions and their view on trust, risk and profitability, and finds that such changes in perception go a long way to explain the changes in observed behaviour in this period