Enhancing customer knowledge: the role of banks in financial well-being

Abstract

Purpose The purpose of this paper is to explore the role of banks in enhancing consumer knowledge aiming to increasing customer’s financial well-being. Design/methodology/approach This research applied two quantitative studies with customers of banks in a Latin American country. The literature review and the results of the data analysis founded the development of a model that relates bank information transparency and subjective financial well-being through consumer financial knowledge. Findings By being transparent banks may transform the financial well-being of their customers. Particularly, this paper shows that consumer financial knowledge mediates the relationship between bank information transparency and the subjective financial well-being of individuals. However, the mediational effect occurs by subjective but not objective financial knowledge. Research limitations/implications The mediational model of this research does not take in consideration the role that individual factors play in the exposition and processing of the information provided by banks and its final impact on the subjective well-being of individuals. Also, this paper does not explore potential moderators of the theoretical relationships neither include cultural variables in the analysis. Originality/value Firm transparency has been related to various constructs in the marketing literature; however, its impact on consumer financial well-being is under-researched. This paper shows that companies need to aim to increase the subjective financial knowledge of their customers as a way to improve ultimate well-being of their customers.

Consumer’s subjective financial well‐being: A systematic review and research agenda

“…The notable difference between the two versions of the definition released by CFPB is the removal of the financial future and the introduction of financial freedom in the recent version of the definition. The financial shock aspect of FWB is also articulated as scarcity (Cook & Sadeghein, 2018) or financial stress (Kim et al., 2003; Losada‐Otálora & Alkire (née Nasr), 2019; Losada‐Otalora et al, 2018; Mende & van Doorn, 2015; Postmus et al, 2015). The conceptualizations of financial stress, scarcity, and financial shock present in the CFPB definition have one common thread, which is that consumers experience mental and physical hardship by not having enough money.…”

“…Banks can make adequate and timely disclosure of information–their financial product ratings, accurate data comparing their own and the competitor’s financial product offerings–voluntarily in an easily understood language. These disclosures can help their consumers to make informed decisions about their financial product purchases (Ferdous & Polonsky, 2013; Losada‐Otálora & Alkire (née Nasr), 2019; Losada‐Otalora et al., 2018). This information disclosure can increase FWB through two mechanisms: (a) by increasing the financial knowledge of the consumers (Losada‐Otalora et al., 2018) and (b) by improving positive attitudes toward the bank and by achieving financial self‐efficacy (Losada‐Otálora & Alkire (née Nasr), 2019).…”

“…Their role in increasing the FWB of consumers cannot be undermined. In this context, SLR has uncovered two mechanisms from published studies that banks can use to increase FWB of consumers: (a) financial information transparency (Ferdous & Polonsky, 2013;Losada-Otálora & Alkire (née Nasr), 2019;Losada-Otalora et al, 2018;Shim et al, 2013;Winterich & Nenkov, 2015) and (b) ethical selling behavior (Baker & Dumont, 2014;Ferdous & Polonsky, 2013).…”

“…In a similar spirit, Brüggen et al (2017) defined FWB as "the perception of being able to sustain current and anticipated desired living standard and financial freedom" (p. 2). This definition is used in some recent studies (Chatterjee et al, 2019;Hampson et al, 2018;Hampson & McGoldrick, 2017;Losada-Otalora et al, 2018). The concept of living standards or standard of living is one of the core principles of many organizations, including the UN, WB, and OECD.…”

“…These disclosures can help their consumers to make informed decisions about their financial product purchases (Ferdous & Polonsky, 2013; Losada‐Otálora & Alkire (née Nasr), 2019; Losada‐Otalora et al., 2018). This information disclosure can increase FWB through two mechanisms: (a) by increasing the financial knowledge of the consumers (Losada‐Otalora et al., 2018) and (b) by improving positive attitudes toward the bank and by achieving financial self‐efficacy (Losada‐Otálora & Alkire (née Nasr), 2019). Moreover, banks can leverage the social influence information (namely the compliance rate of others) to increase consumers’ household savings rate, thereby increasing FWB (Winterich & Nenkov, 2015).…”