Financial Knowledge and Trust in Financial Institutions

Abstract

Using fourteen years of data on Dutch consumers’ trust in financial institutions, we find that financially literate consumers are more likely to trust banks, insurance companies and pension funds, and the competence and integrity of the managers of these institutions. This holds both for broad-scope and narrow-scope trust. Although trust in respondents’ own financial institutions is significantly higher than general trust in financial institutions, both forms of trust are positively related. Financially knowledgeable people are more likely to trust the prudential supervisor. Finally, our results indicate that trust in the supervisor is positively related to trust in the financial sector.

Keywords: trust, financial institutions, financial literacy, consumer survey

JEL Classification: D12, D83, E58, G21, G22