That question is not easy. During the USSR time money per se was not as important as your network. You could’ve been rich, but you needed connections to buy as simple things like good shoes or a good piece of meat at the grocery store. Retail was not as it is now, on the surface there was nothing good in the stores. Quality products appeared in the stores occasionally, accumulating long lines of people. But if you are friends with the manager of the store or with a salesperson – you could get the “deficit” goods. That usually was a favor trade: you did not pay a commission, but you gave something in return. That could’ve been anything – for example concert tickets in return for the Italian shoes. That usually depended on where you worked, to which “deficit goods” you had access yourself. In addition to that friends could always lend you some money or help you in some other way (move your furniture, take you to the airport so that you do not need to call a taxi etc.). I wrote about the role of friendship in Russia in the other post.
As soon as Russia became “capitalist country” after Perestroika things have changed. Suddenly, goods and services have become abundant, but most people did not have enough money to buy them (since a lot of people lost their savings during the money reform). But cash has now become the king, as it is in the West.
The attitude towards money did morph a lot in the last 25 years. Older people, who were born and raised in the USSR despised money as a criteria for success. During the USSR time, the criteria for success among intellectual élite were your achievements in science or other professional fields and in your hobby (if you were a singer for example). Criteria for success among less intellectual crowds were monetary such as carpets, crystal etc. at your apartment, your car and your ability to get “deficit goods”.
During Perestroika of the 90s the income gap has become really visible. A 17-year-old interpreter or 17-year-old person, who sells T-shirts at the street market could make 10X money than an engineer with 20 years of experience. At that time I studied Microbiology at the University and actually worked as an interpreter and some of my professors hated me for doing that.
In the next 10-20 years things more or less came in order. It has become more difficult to make a lot of money until you get a diploma. The value of money has become more obvious even to the most romantic souls. Prices did stabilize.
For most people who live in Russia that question is still rhetorical. They earn just enough to sustain their monthly expenses so they do not experience the trouble of wise investing. They rather experience the trouble of resisting too much credit. For the population that has never been exposed to credit cards, credit cards and loans became a big problem. People loved the idea of getting the money they wish to have now and paying for the debt later. Most of the people had no clue about interest rates (and at first banks played on that, did not disclose true interest rates etc.) It was nearly the same problem as many of the US teens have with their first credit cards. The difference is that we are talking about tens of millions of adults in Russia. For many of these people it will be really difficult to return their financial freedom. They have bought household appliances or cars at the interest rate that sometimes was more than 30-40% a year and now have more debt than their annual income.
However, there is a small percentage of Russians who manage to earn more than they spend. Some of them got a good Russian or Western education and work in big Russian or Multinational companies. Some of them are successful entrepreneurs. For them, the main problem is how to invest their money, so that it brings high return at minimum risk.
What do they do now? Most of them open bank deposits in hard currency (that is why I have $ and not Rub at the cover of this post), as the government guarantees security of such investments and the interest rate is pretty high. Some people just spend more. Very few have a sound investment strategy. Hopefully that will change in the next decade.
To learn more about how Russians invest money, please visit the amazing blog about investments, written by my good friend and B-School classmate! I had an honor to be interviewed by the author of the StockyFox blog and we had a long discussion about investment habits of Russians. I hope you enjoy it! Looking forward to your comments!
© 2016 Tatiana Golubeva. All rights reserved.