Trust in Financial Institutions Differ by the Customer’s Financial Literacy

• Report

Rikuto Isogawa, Solution Unit

Nikkei Research analyzed the data of the Japan Financial Institution Customer Ratings METER®, a survey conducted in August 2022 with a total of 170,000 respondents in Japan nationwide evaluating financial institutions. We discovered that the level of trust in financial institutions differs on the financial literacy of the customers. The results indicate that to gain the trust of customers, financial institutions must put more effort to enhance their customer’s financial literacy.

In the latest survey, two questions about trust in financial institutions were asked: “the level of trust in financial institutions” and “the level of trust in products and information introduced by the sales representatives of the financial institutions.” We analyzed how those level of trust is different depending on the customers' financial literacy.
The level of trust in financial institutions (Figure 1) was 41.3% overall (sum of shares who answered “Agree” and “Somewhat agree” to the question “Do you trust financial institutions?”). That level of trust differed by the respondents’ financial literacy level — high literacy groups tend to trust more than lower literacy groups.
From the financial literacy measured in the survey, we grouped them into five; the lowest level as “Level 1” and the highest as “Level 5.” Comparing across those levels of literacy, less than 30% of the “Level 1” trust financial institutions, while more than half above “Level 3” trust financial institutions.

Figure 1. Level of trust in financial institutions

Further, respondents were asked about the sales representatives on three aspects: (1) easiness of getting a consultation, (2) purchase demand to introduced products, (3) meaningfulness of information provided (Figure 2). The results showed that group “Level 1” had the lowest score, while “Level 3” and “Level 4” had the highest. Group “Level 5” scored slightly lower than those of “Level 3” and “Level 4,” indicating that when their literacy reaches a certain level, they rely more on their knowledge and judge by themselves, rather than depending on financial institutions. Focusing to even this highly literate group may become necessary in the coming future.

Figure 2. Evaluations of sales representatives of financial institutions

The higher the financial literacy, the more they understand better to the information provided by financial institutions, and communication becomes much more bidirectional, leading to building stronger trust. The reason for the low level of trust among low financial literacy groups can be possibly explained as a form of rejecting the unknown, where they think financial knowledge is highly specialized and not to touch.

The importance of putting efforts to improve consumers' financial literacy is increasing alongside the emerging trend of “saving to investing.” To enhance trust, financial institutions would need to improve customers' financial literacy and have them understand better about finance through the offering of products and services. Financial institutions will be expected to perceive the level of each customer’s literacy and provide tailored information depending on their knowledge.