Formal and informal household savings: how does trust in financial institutions influence the choice of saving instruments?

Beckmann, Elisabeth and Mare, Davide Salvatore (2017): Formal and informal household savings: how does trust in financial institutions influence the choice of saving instruments?

Abstract

We investigate whether trust in different financial institutions influences the choice of saving instruments. Is trust a significant determinant of household saving behavior? How does trust in different financial institutions affect the composition of household savings? Using unique survey data for ten emerging market economies in Central, Eastern and Southeastern Europe, we show that trust in the financial system increases the probability of holding formal savings and the diversification among formal saving instruments. Trust in the financial system and in foreign banks are significantly associated with holding contractual and capital market saving instruments. Trust in the safety of deposit has the largest positive effect on bank savings. Trust in domestic banks increases the likelihood of holding formal savings the most and trust in foreign banks decreases holdings of informal savings the most.

• Item Type: MPRA Paper
• Language: English
• Keywords: Household finance; Formal savings; Informal savings; Trust in banks; Trust in the financial system.
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P34 - Financial Economics

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