Financial literacy and fraud detection

Christian Engels, Kamlesh Kumar, Dennis Philip*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    7 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)420-442
    JournalEuropean Journal of Finance
    Volume26
    Issue number4-5
    Early online date28 Jul 2019
    DOIs
    Publication statusPublished - 9 Feb 2020

    Keywords

    • Consumer fraud
    • Fraud victimization
    • Financial literacy
    • Financial knowledge
    • Financial behavior
    • Subjective well-being

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