XXV Edition

1-2 December 2016"

Household Savings and Trust in the Financial System

Beckmann Elisabeth , Austrian Nationalbank
Mare Davide, University of Edinburgh

Is the level of trust a significant determinant of household saving behavior? Does the level of trust in different financial institutions matter for households’ choice of saving instruments? Given the importance of savings as a potential source of investment and thus economic growth, we investigate whether trust in various financial institutions influences the choice of saving instruments. Using unique survey data for ten emerging market economies in Central, Eastern and Southeastern Europe, we show that trust in banks increases the probability of formal savings, particularly bank savings. Trust in deposit safety increases the likelihood of holding bank deposits and this effect is of higher magnitude than that of trust in banks. Households who mistrust banks not only save informally but also resort to non-bank formal savings – if they trust the stability of the financial system.

Area: Financial Regulation and Supervision

Keywords: Household finance; Trust; Financial institutions; Household saving behavior.

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