Since the 2008 global financial crisis, public confidence in the banking system has declined in many countries. This study examines how financial literacy and financial education affect households' fairness-based trust in banks.
Using nationally representative data from the 2024 National Financial Capability Study in the United States, this study investigates the relationship between financial literacy and fairness-based trust in banks. Financial literacy is measured through multiple knowledge dimensions, including inflation, savings and mortgage knowledge.
After controlling for demographic features, financial literacy is negatively associated with fairness-based trust in banks, whereas financial education is positively related to the trust. Among the literacy dimensions, knowledge of inflation and mortgage mechanisms contributes most strongly to distrust. Moreover, cryptocurrency investors exhibit the largest decline in trust as literacy increases. Negative banking experiences, such as overdrafts and late mortgage payments, further intensify the distrust associated with financial literacy.
The analysis relies on cross-sectional survey data and focuses on the United States, which may limit causal interpretation and generalizability.
Financial institutions should complement financial literacy initiatives with efforts to improve transparency and consumer trust.
Improving financial capability should be accompanied by policies that strengthen confidence in financial institutions.
This study contributes to the literature by showing that financial literacy does not necessarily strengthen confidence in financial institutions. Instead, greater financial knowledge may lead individuals to become more critical of banks.
