Trust, financial literacy, and financial market participation

Abstract

Willingness to participate in financial markets is important for financial well-being, including the accumulation of retirement savings through self-directed pension programs. We consider the roles of two key factors, trust and financial literacy in financial market participation. We find both are strongly related to participation. Although trust is more uniformly correlated with increases in financial market participation, the relationship between financial literacy and engagement is u-shaped, with increases in financial literacy first associated with reductions and subsequently with increases in the levels of participation. Our findings suggest trust and financial literacy play different roles and that each is related to investment behaviors in important ways.

Trust in financial institutions: A survey

“…Likewise, Delis and Mylonidis (2015) confirm the importance of trust for the decision to participate in stock markets, although they also find that happiness works in the opposite direction and is economically more important than trust in determining households' financial decisions. Fisch and Seligman (2019) show that higher average trust in different types of people-from a car sales person to a doctor-is associated with increased financial market participation. As will be discussed in the next section, generalized trust may also affect trust in financial institutions.…”

Vicenarian Professionals’ Awareness and Determinants of Engagement in Cryptocurrency in Koronadal City, South Cotabato, Philippines

“…Educational background analysis showed that college graduates constituted the largest group, followed by college-level, postgraduates, and vocational studies. The result is also supported by the study conducted by [7], which concluded that crypto currency users clustered with varying literacy levels and established that financial literacy was associated with Bitcoin and little to no knowledge about other crypto coins and [8] pointed out that financial literacy significantly influence engagement in financial markets, including crypto currency trading.…”

Mechanism of human capital influence on household commercial insurance holding behavior—An empirical analysis based on China household finance survey (CHFS) data

“…Scholars have studied the impact of human capital on household financial market participation from different perspectives. Empirical results from the established literature suggest that the relative paucity of financial literacy is an important constraint on households' financial behavioral decisions (Cui et al, 2019), and that financial education can enhance households' financial market participation by improving their financial literacy acquisition (Balloch et al, 2014), people with greater financial literacy are more likely to participate in formal financial markets (Korniotis and Kumar, 2010;Hsiao and Tsai, 2018), optimize household asset allocation (Bianchi, 2017), and make reasonable financial planning (Wu et al, 2017); Fisch and Seligman (2021) found that the relationship between financial literacy and financial market participation was U-shaped, with growth in financial literacy being associated first with decreases in participation and then with increases in participation. In terms of physical health status, when social security is inadequate, poor health of household members has a significant negative impact on households' current and future financial asset choices (He and Wang, 2021).…”