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

Individual and household financial strategies: theoretical and operational

definitions

Olga KuzinaNational research UniversityHigher School of Economics

Moscow, 2012

Higher School of Economics , Moscow, 2012

www.hse.ru


Research problem

photo

photo

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.


Discussion points in theory

photo

photo

photo

• Between action and structure

• Social (dis)embededdness of rationality


Between action and structure

photo

photo

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


Between action and structure

photo

photo

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.


Social disembededdness of rationality in Economics

photo

photo

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.


Social embededdness of rationality in Sociology

photo

photo

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?


The concept of strategy – theoretical definition

photo

photo

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.


The concept of financial strategies

photo

photo

photo

To base our conceptual enterprise on some sort of empirical basis, we use the data collected during focus group discussions (11).

October 2010 6 focus-group discussions with the middle class urban

residents November 2011

3 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.


Financial strategies as they are perceived by focus-groups participants (1)

photo

photo

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)


Financial strategies as they are perceived by focus-groups participants (2)

photo

photo

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)


Factors of financial strategies as they are perceived by focus-groups participants (1)

photo

photo

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)


Factors of financial strategies as they are perceived by focus-groups participants (2)

photo

photo

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)


Survey findings, November 2010

photo

photo

photo

Have such a goal, % of N

Have the strategy to achieve this goal, % of N

N of all respondents in the survey 1600 1600Do not have any strategic goal 53 -Difficult to say 3 -Have at least one strategic goal, i.e. 44 26

To improve their housing conditions 31 15To get education 26 11

To open their own business 21 4To financially prepare for the retirement 20 3

20, Myasnitskaya str., Moscow, Russia, 101000Tel.: +7 (495) 628-8829, Fax: +7 (495) 628-7931

www.hse.ru

Documents

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