3.4 Financial literacy
Financial literacy is one of the quality dimensions for financial inclusion measurement per the G20 Financial Inclusion Indicators, measuring financial knowledge and financial behavior through quantitative instruments.
Results of 2011 financial literacy survey (Kuzina 2012) in Russia showed that 46 percent of Russians felt that their financial literacy level was unsatisfactory or did not exist at all. To the question regarding which types of investments were protected by the deposit insurance scheme, only 19 percent gave a correct answer; among the rest, 60 percent said they did not know. Only 25 percent were able to correctly identify features of a financial pyramid, and 44 among the rest of the respondents said they did not know. Ten percent admitted that they were not reading financial service agreements before signing, and 20 percent said they usually sign even if they do not understand the agreements.
The objective of this research was to shed light on reasons for relatively low financial literacy levels in Russia through qualitative research (due to the nature of the study the results cannot be generalized for a broader customer group). During several focus group discussions, respondents — active, moderate, and nonusers of financial services — were asked to select several loan products and several deposit products depending on required or available amounts of money, respectively, as presented by the moderator, and explain their choice. The features of financial products to choose from were from among actual financial service provider offerings (except financial pyramid), but the names and other identifying features of providers and products were replaced with invented names.
The study revealed the following findings:
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While most of the respondents said that among the factors that matter the most to them in choosing financial service providers and products are provider reliability and reputation, including state ownership (see Section 3.5), when choosing the products they did not try to match product characteristics with possible provider types, i.e., to guess whether a provider was a large state bank or not. Instead, they mostly paid attention to simplicity and clarity of product descriptions.
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With respect to loan products, they tended to choose loans where an interest rate was presented as an exact figure rather than a range; where loan amount was the highest; with shorter descriptions of other conditions and the least amount of small print; and with a cooling-off period option.39 Among the offers selected the least often were those products that were described using highly technical terminology.
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Microloans were more often chosen by less experienced respondents — nonusers of financial services, regardless of their age. The main features attracting them were a possibility to get a loan in one day, as well as availability of an online credit calculator allowing them to see the exact absolute amount of interest they will pay (the “overpayment,” as respondents called it).
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With respect to savings products, respondents generally could not distinguish between various instruments (demand and term deposits or mutual funds) and mostly looked at interest rates. While a high interest rate for an investment with a financial pyramid looked suspicious to some respondents, among all groups of respondents (active, moderate, and nonusers) some still selected a financial pyramid.
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Some respondents viewed longer product descriptions as an attempt to hide some important information from them and therefore preferred products with shorter descriptions.
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Respondents mentioned difficulties in choosing products due to nonstandardized product descriptions.
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Some respondents explained their choice by liking the invented name of the chosen provider or product the most (though this may have to do with the short time they were given to choose products).
Details on the qualitative research methodology are presented in Annex 1.
