Individual and household financial strategies: theoretical and operational definitions Olga Kuzina National research University Higher School of Economics Moscow, 2012 Higher School of Economics, Moscow,

Higher School of Economics, Moscow, 2012 Research problem photo Theoretical problem The concept of ‘strategy’ in sociology was introduced to avoid both extremes: structural determinism and excessive voluntarism in explanation of human behaviour. Even though sociologists agree about the ambition of this concept, the way this concept is defined and operationalized for empirical research is still at issue. Practical reason Short horizon of financial planning, lack of retirement savings, lack of savings and consumption smoothing in Russia.

Higher School of Economics, Moscow, 2012 Discussion points in theory photo Between action and structure Social (dis)embededdness of rationality

Higher School of Economics, Moscow, 2012 Between action and structure photo How in the structurally determined situations people are able to exercise initiative? Between excessive voluntarism and structural determinism rather than between action and structure – action perspective as a solution. NOT voluntarism determinism action structure

Higher School of Economics, Moscow, 2012 Between action and structure photo Action theories have never asserted that people are entirely free in their actions – relative not full autonomy Mead (1934) – “I” and “Me” Goffman (1959) – dramaturgical approach, scripts, actors vs. puppets Beckert (2010) - the concept of ‘non-teleological interpretation of intentionality’ - people develop a notion of what kind of strategies are reasonable through interaction. They are not looking for global or local optima, but rather for the safe (problem-free) ways of doing something.

Higher School of Economics, Moscow, 2012 Social disembededdness of rationality in Economics photo Should strategic behavior be conceptualised as rational in economic sense or it can go beyond the assumption of rationality? Rationality in Economics - an explanatory framework - individuals act consistently according to their independent preferences, are able to seek and process necessary information and maximize their utility (analogy with the law of conservation of energy in physics) Rationality in the presence of uncertainty – more complicated: 1)converting uncertainty into risk, 2)developing institutions which reduce uncertainty (like the state insurance systems of people deposits in banks), framing (Esser 1993, Lindernberg, 1993). 3)applying bounded rationality which economises costs on searching for the information.

Higher School of Economics, Moscow, 2012 Social embededdness of rationality in Sociology photo 1)Rationality is not considered as an overall framework within which all behavior is explained and understood. a)Different types of rationality (Weber) b)Social embededdness of rationality (Polanyi, Granovetter) - rational behavior is not an in-born quality of human nature but rather a competence acquired in the presence of the particular type of social institutions – denial of universal explanations c)Economic rationality not as optimizing behavior but as ‘the construction of the meaning of rational economic action’ (Beckert) 2)Rational financial strategies of individuals or households are conditioned on the nature of financial institutions. An implication for policy makers - financial literacy problem - more information or more regulation of financial markets and consumer protection?

Higher School of Economics, Moscow, 2012 The concept of strategy – theoretical definition photo In sociology there is a number of different definitions of the concept ‘strategy’ Crow (1989) - a strategy is a conscious, purposeful and long- term action. Knights and Morgan (1990) - strategic thinking and acting are conditioned by power. Anderson et al. (1994) - ‘strategy’ must be distinguished from ‘behaviour’ - systems of rationally grounded decisions leading to desired medium- to long-term goals’ In all mentioned definitions, it is emphasised that a strategic action is marked as a long-term, goal-oriented, conscious, innovative, resourceful and powerful action.

Higher School of Economics, Moscow, 2012 The concept of financial strategies photo To base our conceptual enterprise on some sort of empirical basis, we use the data collected during focus group discussions (11). October focus-group discussions with the middle class urban residents November focus-group with the middle class urban residents 2 focus-group discussions with the low class urban residents The aim of these focus groups: to find out how people themselves define what financial strategy is, what people consider to be the main elements of financial strategies, how they distinguish between strategic and non-strategic types of financial behavior, which factors they think can facilitate the implementation of financial strategies, and which ones constrain them and force them to behave non- strategically.

Higher School of Economics, Moscow, 2012 Financial strategies as they are perceived by focus-groups participants (1) photo Financial strategies are characterised by existence of goals (not dreams) and plans how to achieve them, achievement attitude …What characterises a person with a strategy - (s)he sets up goals in life, thinks in advance, do not live for the moment… (St. Petersburg) … Strategic thinking implies active stand in life, not live it up…(Ekaterinburg) means or resources …to be able to strategise you need resources: money, knowledge, understanding… (Saratov) willpower …One needs consistency in actions, ability to control impulsive behaviour… (Moscow)

Higher School of Economics, Moscow, 2012 Financial strategies as they are perceived by focus-groups participants (2) photo alternative thinking, situational decision-making, forward-looking long- term planning may not be possible because of uncertain environment …I do not like the word ‘planning’, the process of achieving the goals should be flexible, one has to have alternatives if something will go wrong… (Moscow) …Long-term planning is just not possible in our country. Rules of the game are constantly changing in major aspects…. (Ekaterinburg) personal responsibility for both successes and failures …Before I thought that somebody has to help me, advice me what I should do, now I understand that if I take the decision, I am responsible for it… (Moscow) aiming high at development, improvement of situation …To understand if a person has a strategy is possible by looking at his or her results. There should be the improvement in his or her life…(Ekaterinburg)

Higher School of Economics, Moscow, 2012 Factors of financial strategies as they are perceived by focus-groups participants (1) photo actual state of affaires in the economy … Strategies are conditional on the state of the economy in Russia…(Voronezh) employment and stability in the sector …I work for a beer company. People have been drinking beer for ages, they will never stop doing that. If one restaurant will be closed, the other two will be open…(Ekaterinburg) …For a civil servant there always be a place to work… (Ekaterinburg) … I have been married for a long time. My husband has been always working. I feel myself stable…(Moscow) … I am a doctor, people will never stop being ill…(Krasnoyarsk) … I am a policeman, it seems to be stable… (Moscow)

Higher School of Economics, Moscow, 2012 Factors of financial strategies as they are perceived by focus-groups participants (2) photo reputation of a good employee … I am professional, I work properly, my bosses recognise this and respect me…(Ekaterinburg) the stage in the life cycle … When you are young you are likely not to have a strategy because you think that you have a lot of possibilities. When you turn 40 – you understand that you must have a strategy. And this strategy is to preper for your retirement… (Voronezh) … I feel that in my age it is late to look forward. In our country if you are not young you may loose your job and will not be able to find another, in this situation it is not possible to have a strategy … (Ekaterinburg) … When you are young you must have got an education. So you must have a strategy for that… (St. Petersburg) situation in the family …Individual strategy is not possible if you have a family. Your family may not support your strategy… (Voronezh)

Higher School of Economics, Moscow, 2012 Survey findings, November 2010 photo Have such a goal, % of N Have the strategy to achieve this goal, % of N N of all respondents in the survey 1600 Do not have any strategic goal 53- Difficult to say 3- Have at least one strategic goal, i.e To improve their housing conditions 3115 To get education 2611 To open their own business 214 To financially prepare for the retirement 203

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