Financial Literacy and Fraud Detection

The European Journal of Finance, Forthcoming

41 Pages Posted: 15 Jan 2019 Last revised: 12 Jul 2019

See all articles by Christian Engels

Christian Engels

Durham University - Department of Economics and Finance

Kamlesh Kumar

Durham University, Business School, Department of Economics and Finance, Students

Dennis Philip

Durham University - Department of Economics and Finance

Date Written: June 17, 2019

Abstract

Who is better at detecting fraud? This paper finds that more financially knowledgeable individuals have a higher propensity to detect fraud: a one standard deviation increase in financial knowledge increases fraud detection probabilities by 3 percentage points. The result is not driven by individuals' higher financial product usage and is observed to be moderated by individuals' low subjective well-being, effectively depleting skills to detect fraud. Interestingly, prudent financial behavior relating to basic money management is found to have negligible effects for detecting fraud. The findings attest to the fact that fraud tactics are increasingly complex and it is greater financial knowledge rather than basic money management skills that provides the degree of sophistication necessary to detect fraud. The paper draws policy implications for consumer education programs to go beyond cultivating money management skills, and provide advanced financial knowledge necessary for tackling fraud.

Keywords: consumer fraud, fraud victimization, financial literacy, financial knowledge, financial behavior, subjective well-being

JEL Classification: D14, D18, D91

Suggested Citation

Engels, Christian and Kumar, Kamlesh and Philip, Dennis, Financial Literacy and Fraud Detection (June 17, 2019). The European Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3308537 or http://dx.doi.org/10.2139/ssrn.3308537

Christian Engels

Durham University - Department of Economics and Finance ( email )

Mill Hill Ln
Durham, DH1 3LB
United Kingdom

Kamlesh Kumar

Durham University, Business School, Department of Economics and Finance, Students ( email )

Durham
United Kingdom

Dennis Philip (Contact Author)

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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