Save or Borrow – What Determines Russian Households’ Financial Strategies?

36 Pages Posted: 4 Nov 2011

See all articles by Maria Semenova

Maria Semenova

National Research University Higher School of Economics

Date Written: November 1, 2011

Abstract

This paper examines what influences Russian households’ decisions to save and borrow. We use the 2008 data from the 17th round of the Russia Longitudinal Monitoring Survey (RLMS-HSE). Our results show that the determinants of saving and borrowing are not only those suggested by economic theory but also include psychological and sociological considerations: smarter respondents, who are satisfied with their lives and inclined to help other people, are more likely to save. Those who enjoy stable or improving financial conditions and/or are satisfied with them are more likely to save and less likely to borrow. Financial literacy, a factor cited by institutional theory as positive for both saving and borrowing from banks, lost its significance at the onset of the financial crisis. Household income, suggested by economic theory as a basis for choosing a financial strategy, was found to have much less influence on savings and to have a positive influence on borrowing, confirming the rationing theory rather than inter-temporal choice theory. Surprisingly, the fear of job loss does not make people save more, contrary to the precautionary motive.

Keywords: household, Russia, saving, bank loans

JEL Classification: D14, D91, G21

Suggested Citation

Semenova, Maria, Save or Borrow – What Determines Russian Households’ Financial Strategies? (November 1, 2011). BOFIT Discussion Paper No. 28/2011, Available at SSRN: https://ssrn.com/abstract=1954616 or http://dx.doi.org/10.2139/ssrn.1954616

Maria Semenova (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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