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Financial literacy and fraud detection

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  • Christian Engels
  • Kamlesh Kumar
  • Dennis Philip

Abstract

Who is better at detecting fraud? This paper finds that more financially knowledgeable individuals have a higher propensity to detect fraud: a one standard deviation increase in financial knowledge increases fraud detection probabilities by 3 percentage points. The result is not driven by individuals' higher financial product usage and is observed to be moderated by individuals' low subjective well-being, effectively depleting skills to detect fraud. Interestingly, prudent financial behavior relating to basic money management is found to have negligible effects for detecting fraud. The findings attest to the fact that fraud tactics are increasingly complex and it is greater financial knowledge rather than basic money management skills that provide the degree of sophistication necessary to detect fraud. The paper draws policy implications for consumer education programs to go beyond cultivating money management skills, and provide advanced financial knowledge necessary for tackling fraud.

Suggested Citation

  • Christian Engels & Kamlesh Kumar & Dennis Philip, 2020. "Financial literacy and fraud detection," The European Journal of Finance, Taylor & Francis Journals, vol. 26(4-5), pages 420-442, March.
    • Handle: RePEc:taf:eurjfi:v:26:y:2020:i:4-5:p:420-442
    DOI: 10.1080/1351847X.2019.1646666
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    Citations

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    Cited by:

    1. Malik, Muhammad Farhan & Nowland, John & Buckby, Sherrena, 2021. "Voluntary adoption of board risk committees and financial constraints risk," International Review of Financial Analysis, Elsevier, vol. 73(C).
    2. NDOU, Adam, 2023. "Parental Financial Socialisation And Socioeconomic Status," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 27(1), pages 39-58, March.
    3. Muhammad Waqas & Alishba Hania & Farzan Yahya & Iqra Malik, 2023. "Enhancing Cybersecurity: The Crucial Role of Self-Regulation, Information Processing, and Financial Knowledge in Combating Phishing Attacks," SAGE Open, , vol. 13(4), pages 21582440231, December.
    4. Wei, Li & Peng, Ming & Wu, Weixing, 2021. "Financial literacy and fraud detection——Evidence from China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 478-494.
    5. Kubilay, Elif & Raiber, Eva & Spantig, Lisa & Cahlíková, Jana & Kaaria, Lucy, 2023. "Can you spot a scam? Measuring and improving scam identification ability," Journal of Development Economics, Elsevier, vol. 165(C).
    6. Hagen, Johannes & Malisa, Amedeus, 2022. "Financial fraud and individual investment behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 593-626.
    7. Trinh Quang Long & Peter J. Morgan & Naoyuki Yoshino, 2023. "Financial literacy, behavioral traits, and ePayment adoption and usage in Japan," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-30, December.
    8. Xiao, Xiao & Li, Xiangyi & Zhou, Yi, 2022. "Financial literacy overconfidence and investment fraud victimization," Economics Letters, Elsevier, vol. 212(C).
    9. Burke, Jeremy & Kieffer, Christine & Mottola, Gary & Perez-Arce, Francisco, 2022. "Can educational interventions reduce susceptibility to financial fraud?," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 250-266.
    10. Daniela Marconi & Marco Marinucci & Giovanna Paladino, 2022. "Digitalization, financial knowledge and financial decisions," Questioni di Economia e Finanza (Occasional Papers) 741, Bank of Italy, Economic Research and International Relations Area.
    11. AHMAD Idris & ALNI Rahmawati & ARNI Surwanti & MAMDUH M. Hanafi, 2023. "Financial Literacy To Improve Sustainability: A Bibliometric Analysis," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 18(3), pages 24-43, December.
    12. Liu, Bofan & Lu, Bin, 2023. "Can financial literacy be a substitute for financial advisers? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    13. David Aristei & Manuela Gallo, 2021. "Financial Knowledge, Confidence, and Sustainable Financial Behavior," Sustainability, MDPI, vol. 13(19), pages 1-21, September.
    14. Vani Tanggamani & Azlina Rahim & Hamidah Bani & Nor Ashikin Alias, 2024. "Elevating Financial Literacy Among Women Entrepreneurs: Cognitive Approach of Strong Financial Knowledge, Financial Skills and Financial Responsibility," Information Management and Business Review, AMH International, vol. 16(1), pages 279-286.
    15. Gallucci, Carmen & Giakoumelou, Anastasia & Santulli, Rosalia & Tipaldi, Riccardo, 2023. "How financial literacy moderates the relationship between qualitative business information and the success of an equity crowdfunding campaign: Evidence from Mediterranean and Gulf Cooperation Council ," Technology in Society, Elsevier, vol. 75(C).
    16. Ferilli, Greta Benedetta & Palmieri, Egidio & Miani, Stefano & Stefanelli, Valeria, 2024. "The impact of FinTech innovation on digital financial literacy in Europe: Insights from the banking industry," Research in International Business and Finance, Elsevier, vol. 69(C).
    17. Li, Peng & Li, Qinghai & Du, Shanxing, 2024. "Does digital literacy help residents avoid becoming victims of frauds? Empirical evidence based on a survey of residents in six provinces of east China," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 364-377.
    18. Tiina Koskelainen & Panu Kalmi & Eusebio Scornavacca & Tero Vartiainen, 2023. "Financial literacy in the digital age—A research agenda," Journal of Consumer Affairs, Wiley Blackwell, vol. 57(1), pages 507-528, January.

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