Central Bank of Armenia (courtesy CBA Facebook page)

Consumer Spending and Financial Literacy Facing Stress in Post-Covid, Post-War Armenia


By Cristopher Patvakanian

Special to the Mirror-Spectator

YEREVAN – The financial system and spending patterns of many Armenians were not isolated from the shocks to Armenian society following the pandemic and 2020 war.

Financial literacy – knowledge of one’s earnings, spending, savings, and financial planning capacity, plays an important role in consumer spending behavior. By some metrics, Armenia’s level of such knowledge is among the lowest in the region. According to the S&P’s Global Financial Literacy Survey, per its 2014 survey, only 18% of adults were overall financially literate in the country, compared to 36% in Azerbaijan and 30% in Georgia. That survey asked 4 basic questions on numeracy, interest compounding, inflation, and risk diversification, and the result showed only 18% of Armenians were able to answer at least 3 of those questions correctly. In times of crisis, it is more important than ever to have a good understanding of the financial system and a society with high financial literacy.

Incidentally, the situation is not much better in the United States, as only around 30% of Americans would be considered financially “literate” based on a similar survey.

A recent study on Armenia is the Financial Capability Barometer, conducted by the Central Bank of Armenia (CBA) from 2014-2019. The Barometer looked at more thematic groups and categories beyond simple questions of financial knowledge, capturing also the skills, attitude, behavior metrics of financial literacy of Armenians across the country. The study found that the overall “behavior” of individuals – the number of people taking concrete actions in their financial best interest – for most all measures in the survey experienced an overall increase from 2014 to 2019. This progress, though very promising, still leaves areas for improvement in Armenian society, namely in long-term planning and saving behaviors.

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Impact of Covid-19

Looking at the effect of the pandemic on financial spending patterns, there are several metrics which provide insights into the behavior of Armenians. The first obvious impact of COVID-19 was the reduction in cash transactions, most likely due to fears of contracting the disease from fiat money. For the first time in Armenian history, the percent of card transactions surpassed those of cash ones, with only 43% of transactions being conducted with cash vs. 57% with cards in the first quarter of 2020. Armenia saw a change not only in the volume but also in the number of transactions.

Compared to 2019, the overall number of credit card transactions in Armenia experienced a 39% increase in the 2020 financial period, a notable difference again due to the impact of Covid on Armenians’ financial spending. The increase in card transactions resulted in the need for better financial literacy. As a result, banks and institutions began implementing campaigns and on card best practices and protection from scams.

Similarly, many bank transactions which previously were primarily conducted in person became available through online websites and mobile applications. In fact, in June of 2020, the Central Bank itself promoted the use of online services for transactions to reduce the spread of COVID19. However, despite the emphasis on reducing traffic towards in person banking services, there was still a 7.5% growth in the accounts created in 2020, compared to 5.6% account growth in 2019.

Impact of 2020 War

Quantifying the impact of war on financial literacy and behavior is challenging, as many key statistics, indicators, and survey results have not yet been released. However, during periods of crisis and uncertainty, if there is low trust in the government and financial system, there are several measurable changes that can be observed, such as dollarization and levels of savings kept in the bank.

Looking specifically at dollarization, or the conversion of local currency to dollars out of fear of a devaluation, one can see this happening to an extent in Armenia after the war. According to the Central Bank of Armenia, households and businesses lost an estimated 5-7 billion AMD or 9.5 – 13.4 million dollars (per the current exchange rate) thanks to unearned interest. On the tremendous loss in savings due to irresponsible savings and dollarization, CBA Chairman Martin Galsytan stated, “I do not know how many crises we have to go through to understand that such things should not be done.”

One change we did not see were masses of people taking out their deposits out of the bank, also known as a “bank run.” Though historically they do not primarily occur during periods of war, many bank runs do happen when the general public feels safer to hold their currency in cash and loses confidence in the bank’s ability to protect their money during periods of catastrophes. One important reason likely behind this is the Deposit Guarantee Fund of Armenia (DGFA). Similar to the American FDIC guarantee of one’s savings in the US, the DGFA protects the savings of up to 16 million AMD and up to 7 million AMD worth of foreign deposits per person. The deposit guarantee was increased after the war from the initial 10 million for AMD and 5 million AMD worth of foreign currency.

Two concerns many Armenians had were regarding what would be the fate of the financial commitments of those who were living in Artsakh and of soldiers participating in the war. Initially, those who could provide documentation that they were in fact conscripted or volunteered were waived from late fees and penalties from the bank, while having their fines or credit classifications being considered on an individual basis. For those families in Artsakh, a policy was proposed by the Artsakh Republic in February to allow individuals and legal entities that have mortgage, business, consumer loans and loans received before September 27, 2020 to use state support in the near future. Similarly, from October 2020 to March 31, 2021, individual borrowers were provided with a grace period for principal amounts of up to 30 million drams or equivalent foreign currency loan liabilities (except for mortgage and gold loans), and the loan repayment period was extended accordingly.

Many commercial banks were considering fully or partially forgiving credit liabilities of customers who died, went missing or became disabled as a result of hostilities, but at the discretion of the bank and each customer’s unique situation. However, on May 18, it was announced by CBA Chairman Galystyan in a National Assembly meeting that banks and credit organizations had forgiven 2.5 billion AMD in loans to the victims, relatives of the missing or missing soldiers, all without any government assistance.

In terms of financial spending post-war, a major concern in consumer spending could be a rise in prices, namely for bread and grain products. Former Minister of Agriculture, Arthur Khachatryan, estimated in November of 2020 that in the future Armenia would need to import 20-25% more grain from other countries after losing that land during the war. Similarly, the Chairman of the Board of Banks of Armenia, Artak Ananyan, believes that the majority of the financial effects of Armenia’s crises are to be felt and seen in 2021, per his March interview earlier this year. In his words, “Much [of the impact on the banking system] will depend on the development of the epidemic situation, the actions of the authorities, the general domestic and foreign policy situation of the country.”

As Armenians anticipate elections this summer, periods of crisis are bound to test the financial system again, and consumer behavior will respond accordingly. Many bankers and institutions are hoping consumers will make decisions in their best interest, decisions which ultimately stem from, among many factors, one’s level of financial literacy.

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