Based on analysis of 14 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. This result applies both to broad‐scope trust (trust in financial institutions in general) and narrow‐scope trust (trust in one's own financial institution). Our conclusion holds when we use a financial literacy proxy based on self‐assessed knowledge or a proxy based on actual knowledge. For all types of financial institutions researched, we find that narrow‐scope trust is significantly higher than broad‐scope trust, but both forms of trust are positively related. Financially knowledgeable people are more likely to trust managers of financial institutions and have more trust in the prudential supervisory authority. Finally, our results suggest that trust in the supervisory authority positively correlates with trust in the financial sector.
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.
Trust in financial institutions is widely considered important. However, a clear overview of studies on the drivers of trust is missing. We intend to fill this gap in the literature. After discussing why trust in financial institutions is important, we turn to its measurement, where we distinguish between trust in one's own institution and trust in institutions in general (narrow-scope and broad-scope trust), and discuss how these measures differ from generalized trust (i.e. trust in other people with whom there is no direct relationship). Finally, we survey the determinants of trust in financial institutions and discuss a wide range of drivers. First, trust in financial institutions depends on the economic situation: it behaves procyclically and is negatively affected by financial crises. Second, the behavior of the financial institutions matters: prudent conduct, the provision of good services and financial health have a positive effect on trust. Third, although consumer characteristics also relate to trust, many of these relationships are context-dependent. Fourth, there is a positive association between narrow-scope trust on the one hand and broadscope trust and generalized trust on the other. Last, policy measures and supervisory actions can help prevent loss of trust.
Trust in financial institutions is widely considered important. However, a clear overview of studies on the drivers of trust is missing. We intend to fill this gap in the literature. After discussing why trust in financial institutions is important, we turn to its measurement, where we distinguish between trust in one's own institution and trust in institutions in general (narrow-scope and broad-scope trust), and discuss how these measures differ from generalized trust (i.e. trust in other people with whom there is no direct relationship). Finally, we survey the determinants of trust in financial institutions and discuss a wide range of drivers. First, trust in financial institutions depends on the economic situation: it behaves procyclically and is negatively affected by financial crises. Second, the behavior of the financial institutions matters: prudent conduct, the provision of good services and financial health have a positive effect on trust. Third, although consumer characteristics also relate to trust, many of these relationships are context-dependent.Fourth, there is a positive association between narrow-scope trust on the one hand and broadscope trust and generalized trust on the other. Last, policy measures and supervisory actions can help prevent loss of trust.
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