The Russian middle class is still to busy acquiring creature comforts to save money and manage savings carefully. Many middle-class Russians regard the financial system merely as a tool for multiplying its current purchasing power

Last autumn, Expert MA’s Analyst Group and ROMIR-Monitoring Research Company jointly conducted another round of Lifestyles of the Middle Class surveys focusing on a variety of questions: how much do middle-class Russians save and what do they use these savings for? Where and in what currency do they keep their money? Which banks do they use and how do they use them? What do they buy on credit and in what quantities? Are they ready for mortgages and at what cost? What kind of pension do they hope to have? 

Savings

Here we present the results of this survey. After a careful examination of a 150-page report by the survey’s authors, we have come to an important conclusion that might surprise some of you. Typical middle-class Russians are active consumers rather than scrupulous, meticulous, and self-denying savers. The number of families that don’t save at all seems simply shocking at first. The first thing that comes to mind is to tell the authors to readjust the lower income threshold defining the middle class. What is a middle class that can’t seem to save? A more careful analysis leads to less upsetting conclusions, however. It may well be that the present Russian middle class is still too young and too poor in durable goods. Thus, a considerable portion of families prefer “material” to monetary savings, especially as the expanding boom of consumer credit in Russia provides more and more opportunities to make big purchases without setting aside any money from one’s current income (credit for a period of more than a year for this survey). About 17% of the middle-class families surveyed made use of a consumer credit plan last year. Household appliances and video technology became the most popular purchases on credit. Every fourth purchase made by middle-class families was on credit. At the same time, only a tenth of furniture and car buyers used credit.
The consumer credit boom will only expand. This year, as many as 20-24% of middle-class families intended to make purchases using credit.
Our hypothesis can be proved indirectly by one of the survey’s findings, namely that the middle-class Russians’ inclination to save steadily decreases as their declared income increases. 
And now about the savings of those who do set money aside. We won’t go into all the tiresome details (see Table 2 for more information). We’ll just say that in our opinion, it is much more realistic to assume that the Russian middle class’ savings total $65-70 billion, or $5.6-6.1 thousand per family.
This figure is quite small. It equals approximately the average six-month income of a middle-class household. Just for comparison, in the US the accumulated financial assets of the entire population, including the poor, are four times greater than the average American’s annual income, and even minus consumer debt and mortgages, they are still three times greater.
As for the way the Russian middle class saves, half of the middle class keeps a principal part of their savings in cash on hand. A mere 3% intend to invest their savings somewhere with the goal of earning extra income.
According to survey data, savings in rubles, on the whole, turn out to be – within the margin of survey error – about as popular as in foreign currency. 28% of households keep their savings mainly in rubles, while 25% keep them mainly in US dollars and almost another 6% – in euros. 20% of households prefer to diversify their savings between two or all the three currencies. The higher the declared income, education, and social status, the lower the percentage of those who prefer the ruble. 

Banking service

As noted above, cash – rubles and foreign currency – accounts for more than half the savings of the Russian middle class. In this context, the following survey finding comes as no surprise: the overwhelming majority of respondents regard banks mainly as payment-and-settlement points, not as loan and deposit service providers.
What will probably distress bankers even more is that no explosion in the demand for deposit and credit services is coming in the next one to two years. As household incomes increase and more and more Russians move from the lower middle class to the upper middle class, the number of large, quality customers of the Russian financial system will not increase automatically. Judge for yourselves: the rate of savings in middle-class groups with high income is even lower than in the lower-income groups. The higher-income groups are also not very inclined to put the money they do save in banks, and if an upper-middle-class Russian opens an account, it is for no more than one year as a rule – simply to save up some money for a vacation or a rainy day.
Next, the higher the current income of middle-class Russians, the lower the demand for consumer credit to purchase appliances and furniture. Even the purchase of cars and housing on credit increases only insignificantly as incomes rise. 

Mortgages

We must say straightaway that the majority of the middle-class Russians are quite cautious about purchasing housing on credit. Half of those intending to improve their housing didn’t want to get involved with the credit system. As one might expect, as the age increases, the percentage of conservatives also increases noticeably. Surprisingly, the percentage of those who don’t wish to apply for credit or loans has little to do with income levels, and it is practically the highest among the most well-to-do. 
There is no doubt that the selective attitude toward mortgages is due not only to the lack of experience, culture, and the habit of making important and major purchases on credit but also, to a great extent, to the evident inadequacy of current offerings on the mortgage market (only a small part of the highest-income groups of the middle class are ready to fork over the money for a mortgage at an interest rate of more than 10% per annum in foreign currency).

Pension savings

The middle class demonstrated a striking obliviousness to the pension reform about to be launched in Russia, which will affect tens of millions of Russians. More than one third of those surveyed last September stated that they had heard for the first time that they were required to decide the fate of part of their pension savings before the end of the year. Among those under 25, more than half were unaware, while among those over 45, only a quarter didn’t know. Higher paid and better educated people, as one would expect, turned out to be more informed as well.
The survey found a shockingly childish attitude among a substantial portion of the middle class regarding who will manage their pension savings. A third of the respondents were willing to entrust the state with their money (as the age increases, the percentage of those with this attitude also increases considerably), and only 12% would like to transfer their funds to a private management company, including a mere 3% of those who by the time of the survey had already decided which company to choose.
Thus, the war waged by bankers for the retail services market over the last two years will continue to be long and bloody. The very fact that expanding branch or subsidiary networks by no means guarantees that the demand for loans and savings accounts will increase automatically. Retail banks need to position themselves carefully and market the financial services they offer effectively. The lower middle class and “honorary members” of this growing social group will most likely be the main target group for retail banks, especially in regions outside Moscow.

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