Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Joining Forces to Improve Financial Literacy

To Our Readers

The Moscow Times welcomes letters to the editor. Letters for publication should be signed and bear the signatory's address and telephone number.
Letters to the editor should be sent by fax to (7-495) 232-6529, by e-mail to, or by post. The Moscow Times reserves the right to edit letters.

Email the Opinion Page Editor

It was no accident that the final act of Russia's Group of Eight presidency last year was a Finance Ministry conference on one of this country's most intractable problems: the poor level of financial literacy.

This problem is not unique to Russia. A poor understanding of financial products and markets is widespread throughout the developed world. The consequences are well-known: levels of indebtedness have reached serious proportions, defaults on credit card payments and mortgages are common, and poor protection of individual household finance owing to insufficient insurance and pension coverage remain a problem.

This has led many governments to tackle financial illiteracy head-on through a combination of legislation on financial products, improvement of the school curriculum and partnerships with business to provide education and support for those in difficulty.

In Russia, the challenges are of a very specific nature. In the Soviet era, financial services and the concepts of lending and borrowing were all but absent. In the 1990s, the population was fleeced by currency devaluations and pyramid schemes. As a result, people are not particularly open to the new financial products currently flooding the market.

Various sources indicate that 40 percent of Russians do not use banking services, 63 percent have no trust in Russian banks, 74 percent have never taken out an insurance policy and 90 percent of plastic-card users received them through salary-payment schemes. A significant part of the population, especially the poor, is still largely unfamiliar with financial products and highly suspicious of banks.

The educational system is also broken as far as financial education is concerned. The introduction of financial principles has little or no place in the school curriculum, and a basic understanding of legal obligations and property rights is largely absent.

The government must strengthen legislation and its implementation; the sorts of mortgages and property rackets we have seen recently should not go unpunished. The regulator also has a critical role to play in ensuring fair and open competition in the financial-services market.

The experience of other countries, however, demonstrates that the issue requires a multi-stakeholder approach. It is in the vested interests of both government and business to collaborate on investing in financial education.

While the government can create the legislative, educational and economic conditions for improved financial literacy, its ability to ensure that the main message -- the individual's responsibility to make competent financial decisions -- is still highly limited. The financial services industry is able to deliver the right message to the individual but lacks popular trust.

No bank or financial institution has the strength to tackle the issue on its own. Business, with the encouragement and participation of government, can do a surprising amount. Banks have an interest in explaining to the client his or her responsibilities. Many leading banks have developed sound processes for educating their new customer base, but many others engage in the overselling or mis-selling we saw in the relatively unregulated markets of the United States and Britain in the 1990s. A combination of regulation and responsible self-restraint by market leaders is essential to avoiding the debt crisis other countries have experienced.

Given their poor reputation, banks need to do more than capture additional clients, provide more credit and promote their brands. Banks must move to enhance the reputation of the whole industry to gain the trust of people who have not yet moved out of the cash economy. Working with the government and the media, banks and insurance companies can do more to improve financial literacy than if they go it alone.

Financial services companies have a large number of qualified staff who can teach the basics of financial literacy to students. It's great for young people and for the companies -- a new way of developing and engaging their employees in community activities, of attracting new clients and, potentially, new employees, while at the same time raising understanding and interest in financial services.

As the Education and Science Ministry creates new course materials, the private sector could play an important role in developing printed and online materials. There are already a number of individual positive initiatives by several banks. Rosbank has published a book on basic finance for children. Merrill Lynch is planning to translate its stock market training program for young people into Russian, and the Institute of Stock Market and Governance, in collaboration with Citigroup, holds an essay writing competition for schoolchildren.

Major employers also have an interest in raising the level of financial literacy among their employees through on-site seminars, and these employees can get involved in helping young people set up their own businesses. Aluminum producer SUAL has helped set up local enterprise funds that have had a positive impact on employment in its factory cities.

In Kaluga, ABN Amro and Oxfam, in collaboration with the International Business Leaders Forum, are considering setting up a new microcredit fund to provide small loans to help underprivileged young people set up their own business. In addition to financial backing, the participating companies make their managers available to work with young people on business plans and strategy, basic finance and sales and marketing. A similar program, "Make Your Life Work!" recently piloted in St. Petersburg, will open in 10 cities in 2007 and 2008 and provide training camps for unemployed young people in financial literacy, setting up a business and applying for work.

A coordinated multimedia campaign will have to be developed to get the message across. An alliance of government, business and the media could put together an effective financial literacy campaign on television. For younger viewers, educational programs like "Sesame Street" can be adapted to promote a better understanding of basic finance. The Internet can be effective in getting the message across. Many banks have created web sites to help people calculate loans. The web site has agreed to work with a number of leading banks in providing a regular column on financial products for its student readers.

A lot is being done, but so far it been in the form of individual initiatives. The Finance Ministry has set up an inter-ministerial committee to examine how to coordinate the government's response. Business, under the leadership of the Russia Partnership for Responsible Business Practices, has set up a task force comprising banks, insurance companies, nongovernmental organizations and academic institutions. The task force will swap the best corporate practices, bring companies and NGOs together in collaborative projects and provide tools for assessing the effectiveness of financial literacy programs. It will also provide a business-to-consumer portal giving access to all the best online financial support and education programs available in Russia.

Experience in other countries has shown that the combination of public and private sector can have a powerful and hugely beneficial effect. The time is right for the government and business together to address this major challenge in Russia.

Brook Horowitz is executive director of the Russia Partnership for Responsible Business Practices and representative of the International Business Leaders Forum in Russia (