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Can People Trust What They Don‘t Understand? Role of Language and Trust for Financial Inclusion

Author

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  • Nagańska Aleksandra

    (University of Warsaw, Faculty of Economic Sciences, Długa 44/50, 00-241 Warsaw, Poland)

  • Cichocki Stanisław

    (University of Warsaw, Faculty of Economic Sciences, Długa 44/50, 00-241 Warsaw, Poland)

Abstract

The aim of this paper is to look at determinants of financial inclusion through the lens of comprehension of financial concepts and financial language. Specifically, we are interested in which factors are important should this comprehension be absent. We show that, in the context of finance, communication is an important transmission channel through which individuals are encouraged or discouraged to participate in the financial system. We argue that the unfamiliarity with products and the complexity of language used in the banking sector tend to limit trust granted to financial institutions. We test the hypothesis that linguistic diversity is a strong instrument for the impact of the lack of communication on trust. Applying Ordinary Least Squares and probit regression, quantile regression, and instrumental variables to cross country and individual-level data, we show the importance of individual and cultural characteristics and demonstrate the role of trust and communication for financial inclusion. The outcome is consistent for different model specifications.

Suggested Citation

  • Nagańska Aleksandra & Cichocki Stanisław, 2022. "Can People Trust What They Don‘t Understand? Role of Language and Trust for Financial Inclusion," Central European Economic Journal, Sciendo, vol. 9(56), pages 132-157, January.
    • Handle: RePEc:vrs:ceuecj:v:9:y:2022:i:56:p:132-157:n:6
    DOI: 10.2478/ceej-2022-0009
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    References listed on IDEAS

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    2. Mr. Adolfo Barajas & Thorsten Beck & Mohammed Belhaj & Sami Ben Naceur, 2020. "Financial Inclusion: What Have We Learned So Far? What Do We Have to Learn?," IMF Working Papers 2020/157, International Monetary Fund.
    3. Adelaide Baronchelli & Alessandra Foresta & Roberto Ricciuti, 2020. "The Words That Keep People Apart. Official Language, Accountability and Fiscal Capacity," CESifo Working Paper Series 8437, CESifo.
    4. Xu, Xiaoyan, 2020. "Trust and financial inclusion: A cross-country study," Finance Research Letters, Elsevier, vol. 35(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Financial inclusion; financial literacy; trust; linguistic diversity;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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