Financial Literacy and the Financial Crisis: Evidence from Russia

54 Pages Posted: 20 Mar 2011

See all articles by Leora F. Klapper

Leora F. Klapper

World Bank; World Bank - Development Research Group (DECRG)

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Georgios A. Panos

University of Glasgow - Adam Smith Business School

Date Written: March 15, 2011

Abstract

The current financial crisis has generated interest in better understanding how to promote more responsible and prudent individual saving and borrowing behavior. The ability of consumers to make informed financial decisions is critical to developing sound personal finance, which can contribute to increased saving rates, more efficient allocation of financial resources, and greater financial stability. In this paper we use a unique panel dataset (2008 and 2009) from Russia, an economy where consumer loans grew at an astounding rate – from about US$ 10 billion in 2003 to over US$ 170 billion in 2008. The survey contains financial literacy questions, as well as questions on consumer borrowing (formal and informal), savings, and spending behavior. We use this dataset to study both the financial consequences and the real consequences of lower financial literacy. For instance, even though consumer borrowing is increasing very rapidly in Russia, only 41% of respondents in our sample know about the working of interest compounding and only 46% can answer a simple question about inflation. We find that financial literacy is significantly related to participation in financial markets and negatively related to the use of informal sources of borrowing, using the number of regional newspapers and universities as valid instrumental variables. Individuals with higher financial literacy are also significantly more likely to report greater unspent income and levels of spending. In addition, the relationship between financial literacy and unspent income is stronger during the financial crisis.

Keywords: Personal Finance, Financial Literacy, Russia, Financial Crisis

JEL Classification: D14, E21

Suggested Citation

Klapper, Leora F. and Lusardi, Annamaria and Panos, Georgios A., Financial Literacy and the Financial Crisis: Evidence from Russia (March 15, 2011). Available at SSRN: https://ssrn.com/abstract=1786826 or http://dx.doi.org/10.2139/ssrn.1786826

Leora F. Klapper (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-8738 (Phone)

HOME PAGE: http://econ.worldbank.org/staff/lklapper

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Annamaria Lusardi

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Georgios A. Panos

University of Glasgow - Adam Smith Business School ( email )

Gilbert Scott Building
University Avenue
Glasgow, Scotland G128QQ
United Kingdom

HOME PAGE: http://https://sites.google.com/site/georgiosapanos/

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