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

Nagańska, Aleksandra; Cichocki, Stanisław

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

Central European Economic Journal

Volume 9 (2022): Issue 56 (January 2022)

By:

Aleksandra Nagańska

and Stanisław Cichocki

Open Access

|Jul 2022

Figures & Tables

Mean financial inclusion scores vs GDP – access (upper figure) and use (lower figure)Source: Own calculations

Quantile regression results – country levelSource: Own calculations.

Probit Model: Determinants of the Lack of Trust

	Probit: No account because of lack of trust
	Marginal Effect	Standard Error
Age	0.001^***	0.000
Female	−0.029^***	0.004
Education level
Secondary	0.001	0.005
Tertiary or more	−0.016	0.010
Income quantile
Second 20%	−0.001	0.007
Middle 20%	0.004	0.007
Fourth 20%	−0.002	0.007
Richest 20%	0.020^***	0.007
fin_literacy	0.00038^*	0.000
easy_lang	0.005	0.005
lang_div	−0.003	0.009
Lgdp	0.017^***	0.002
Inflation	−0.006^***	0.000
bank_zscore	0.001^***	0.000
Number of observations	35,150
Mean dependent variable	0.213
Standard deviation of the dependent variable	0.409
Pseudo R-squared	0.013
Chi-square	490.479
p-value	0.000

Instrumental Approach: Determinants of Financial Inclusion

	Access score		Use score		Probit: having an account
	Coefficient	Standard Error	Coefficient	Standard Error	Marginal	Standard Error
Age	−0.012^***	0.001	0.012^***	0.000	0.006^***	0.000
Female	0.487^***	0.037	0.147^***	0.015	−0.155^***	0.014
Education level
Secondary	−1.067^***	0.050	−0.348^***	0.020	0.284^***	0.019
Tertiary or more	−2.292^***	0.063	−0.867^***	0.025	0.863^***	0.028
Income quantile
Second 20%	−0.367^***	0.063	−0.149^***	0.025	0.091^***	0.022
Middle 20%	−0.651^***	0.062	−0.276^***	0.025	0.170^***	0.022
Fourth 20%	−1.006^***	0.061	−0.380^***	0.025	0.278^***	0.023
Richest 20%	−1.539^***	0.061	−0.561^***	0.024	0.474^***	0.024
easy_lang	0.724^***	0.053	−0.026	0.022	−0.160^***	0.019
fin_literacy	−0.031^***	0.002	−0.034^***	0.001	0.012^***	0.001
Lgdp	−0.526^***	0.032	−0.156^***	0.013	0.265^***	0.014
Inflation	0.081^***	0.006	−0.009^***	0.002	−0.019^***	0.002
bank_zscore	0.047^***	0.002	0.004^***	0.001	−0.012^***	0.001
bank_trust	−0.921^***	0.052	0.093^***	0.021	0.297^***	0.014
lang_div	−0.257^***
First stage F statistic	138.955
_cons	12.288^***	0.238	3.929^***	0.095
Number of observations	41,455		41,455		41,455
Hausman–Wu test:	p = 0,000		p = 0,006		Wald test: p = 0,000
Weak instruments test:	p = 0,000		p = 0,000

Linear Regression: Country Level

	Percentage of people aged 15+ having an account at a formal institution		Mean access score		Mean use score
	Coefficient	Standard Error	Coefficient	Standard Error	Coefficient	Standard Error
credit_info	0.018^***	0.005	−0.100^**	0.046	−0.003	0.018
fin_literacy	0.002^*	0.001	−0.036^***	0.011	−0.026^***	0.004
lang_div	0.068	0.476	−0.059	0.399	−0.096	0.156
bank_zscore	−0.003^*	0.001	0.021^*	0.012	−0.001	0.005
Lgdp	0.157^***	0.015	−1.029^***	0.123	−0.177^***	0.048
Inflation	0.000	0.004	0.000	0.029	−0.014	0.012
easy_lang	−0.023	0.029	0.296	0.244	0.186^**	0.095
_cons	−0.941^***	0.110	13.51^***	0.923	4.03^***	0.360
Number of observations	120		120		120
Mean dependent variable	0.611		2.719		1.455
Standard deviation of the dependent variable	0.294		2.213		0.704
R-squared	0.79		0.74		0.58
F-test	60.05		45.26		24.65
p-value	0.000		0.000		0.000
RESET test	0.047		0.1356		0.0041
Breusch–Pagan test	0.0345		0.0272		0.2180
Jarque–Bera test	0.0646		0.923		0.7997

Variables and Data Sources

Variable name	Indicator	Year	Data source
Access score	Measure of willingness to own one or many financial products. Lower values indicate higher willingness.	2017	Own calculations, Global Findex Database 2017
Use score	Measure of willingness to use one or many financial products in the past 12 months. Lower values indicate higher willingness.	2017	Own calculations, Global Findex Database 2017
inclusion_inst	Percentage of population over the age of 15 having an account at a formal financial institution.	2017	Global Findex Database 2017
fin_literacy	Percentage of adults who are financially literate.	2015^*	Klapper et al. (2015)
bank_trust	Percentage of adults who have a “great deal” or “quite a lot” of trust towards banks.	2017–2020	World Values Survey (wave 7)
credit_info	Index measures the availability and quality of credit information. Scores range from 0 to 8, with higher values indicating better access to information.	2017	World Bank
bank_zscore	Bank's Z-score; probability of country's banking system default.	2017
Lgdp	Logarithm of gross domestic product per capita, current USD.	2017
Iflation	Inflation rate, consumer prices (annual, %).	2016^**
lang_div	Language diversity; probability of two people – randomly chosen from the population – to have different mother tongues.	2017	SIL
easy_lang	Binary variable; takes 1 if banks are required by law to provide parts of information in plain and/or local language and 0 in other cases.	2017	Financial Inclusion Consumer Protection Survey
Female	Binary variable; takes 1 if respondent is female and 0 if male.	2017	Global Findex Database 2017
Age	Respondent's age.	2017
Education level	Respondent's highest level of education; 1= completed primary or less, 2= secondary, 3 = completed tertiary or more.	2017
Income quantile	Indicates the income quantile to which given respondent belongs.	2017

Linear Regression: Individual Level—Model III and Model IV

	Access score				Use score				Probit: has an account at financial institution
	Model III		Model IV		Model III		Model IV		Model III		Model IV
	Coefficent	Standard Error	Coefficent	Standard Error	Coefficent	Standard Error	Coefficent	Standard Error	Marginal Effect	Standard Error	Marginal Effect	Standard Error
Age	−0.016^***	0.000	−0.014^***	0.000	0.012^***	0.000	0.012^***	0.000	0.002^***	0.000	0.002^***	0.000
Female	0.434^***	0.033	0.465^***	0.034	0.151^***	0.015	0.154^***	0.015	−0.042^***	0.004	−0.046^***	0.004
Education level
Secondary	−1.341^***	0.044	−1.268^***	0.044	−0.358^***	0.019	−0.328^***	0.019	0.132^***	0.005	0.119^***	0.005
Tertiary or more	−2.411^***	0.056	−2.285^***	0.056	−0.924^***	0.025	−0.860^***	0.025	0.279^***	0.007	0.268^***	0.006
Income quantile
Second 20%	−0.340^***	0.057	−0.405^***	0.056	−0.150^***	0.025	−0.150^***	0.025	0.033^***	0.007	0.034^***	0.006
Middle 20%	−0.707^***	0.056	−0.722^***	0.056	−0.268^***	0.025	−0.274^***	0.025	0.061^***	0.007	0.064^***	0.006
Fourth 20%	−1.057^***	0.056	−1.089^***	0.055	−0.360^***	0.025	−0.377^***	0.024	0.094^***	0.007	0.099^***	0.006
Richest 20%	−1.633^***	0.055	−1.676^***	0.054	−0.536^***	0.024	−0.557^***	0.024	0.157^***	0.006	0.162^***	0.006
bank_zscore	0.036^***	0.002	0.035^***	0.002	0.003^***	0.000	0.004^***	0.001	−0.008^***	0.000	−0.002^***	0.000
Lgdp	−1.289^***	0.018	−0.729^***	0.026	−0.425^***	0.008	−0.129^***	0.012	0.155^***	0.002	0.101^***	0.003
Inflation	−0.013^***	0.004	0.016^***	0.004	−0.010^***	0.002	−0.002	0.002	0.003^***	0.000	0.000	0.000
fin literacy			−0.056^***	0.002			−0.033^***	0.000			0.006^***	0.000
credit_info			−0.136^***	0.010			0.021^***	0.005			0.015^***	0.001
easy_lang			0.304^***	0.042			0.023	0.019			−0.017^***	0.005
bank_trust	0.074^***	0.010	0.148^***	0.010	0.009^*	0.005	0.034^***	0.005	−0.008^***	0.001	−0.013^***	0.001
_cons	16.216^***	0.168	13.502^***	0.208	5.394^***	0.075	3.883^***	0.092
Number of observations	41 455		41 455		41 455		41 455		41 455		41 455
Adjusted R-squared	0.2695		0.2850		0.1668		0.1942		0.2521		0.2682
F-statistic or LR chi² for probit	1275.31		1102.48		691.25		667.06		13088		13923.93

Linear Regression: Individual Level—Model I and Model II

	Access score				Use score				Probit: has an account at financial institution
	Model I		Model II		Model I		Model II		Model I		Model II
	Coefficent	Standard Error	Coefficent	Standard Error	Coefficent	Standard Error	Coefficent	Standard Error	Marginal Effect	Standard Error	Marginal Effect	Standard Error
Age	−0.014^***	0.000	−0.013^***	0.000	0.012^***	0.000	0.012^***	0.000	0.002^***	0.000	0.002^***	0.000
Female	0.474^***	0.021	0.474^***	0.021	0.181^***	0.009	0.164^***	0.009	−0.045^***	0.002	−0.043^***	0.002
Education level
Secondary	−1.637^***	0.026	−1.574^***	0.026	−0.295^***	0.012	−0.306^***	0.012	0.157^***	0.003	0.146^***	0.003
Tertiary or more	−2.603^***	0.035	−2.500^***	0.035	−0.903^***	0.016	−0.898^***	0.016	0.312^***	0.004	0.301^***	0.004
Income quantile
Second 20%	−0.433^***	0.035	−0.426^***	0.035	−0.143^***	0.016	−0.142^***	0.016	0.034^***	0.004	0.034^***	0.004
Middle 20%	−0.681^***	0.035	−0.665^***	0.035	−0.227^***	0.016	−0.227^***	0.016	0.056^***	0.004	0.056^***	0.004
Fourth 20%	−1.001^***	0.034	−0.998^***	0.034	−0.325^***	0.016	−0.323^***	0.015	0.090^***	0.004	0.090^***	0.004
Richest 20%	−1.598^***	0.034	−1.578^***	0.034	−0.465^***	0.015	−0.464^***	0.015	0.151^***	0.004	0.149^***	0.004
bank_zscore	0.031^***	0.001	0.025^***	0.001	0.006^***	0.001	0.002^***	0.000	−0.002^***	0.000	−0.002^***	0.000
Lgdp	−1.006^***	0.009	−0.725^***	0.012	−0.296^***	0.004	−0.134^***	0.005	0.123^***	0.001	0.097^***	0.001
Inflation	−0.004^*	0.003	0.016^***	0.003	−0.017^***	0.001	−0.013^***	0.001	0.002^***	0.000	0.000^***	0.000
fin literacy			−0.041^***	0.001			−0.029^***	0.000			0.005^***	0.000
credit_info			−0.067^***	0.005			0.006^***	0.002			0.007^***	0.001
easy_lang			0.272^***	0.026			0.128^***	0.011			−0.040^***	0.003
bank_trust
_cons	12.906^***	0.083	12.905^***	0.083	4.092^***	0.037	3.633^***	0.038
Number of observations	110 660		106 021		110 660		106 021		110 660		106 021
Adjusted R-squared	0.2958		0.3110		0.1412		0.1845		0.2901		0.3071
F-statistic or LR chi² for probit	4226.15		3418.81		1654.39		174.29		42084.85		42171.33

Financial Inclusion Scores Breakdown

Variable name	Survey question
Access score
fin3	if has debit card: card in own name
fin7	has credit card
fin24	possibility of coming up with emergency funds
Account	has an account
Use score
fin5	used mobile phone or internet to access account at a financial institution
fin6	used mobile phone or internet to check account balance
fin8	if has credit card: used card in past 12 months
fin4	if has debit card: used card in past 12 months
Borrowed	borrowed in the past year
Saved	saved in the past year

DOI: https://doi.org/10.2478/ceej-2022-0009 | Journal eISSN: 2543-6821 | Journal ISSN: 2544-9001

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Language: English

Page range: 132 - 157

Published on: Jul 30, 2022

Published by: Faculty of Economic Sciences, University of Warsaw

In partnership with: Paradigm Publishing Services

Publication frequency: 1 times per year

Keywords:

Financial inclusion,

financial literacy,

trust,

linguistic diversity

Related subjects:

Business and economics,

Political economics,

Economic theory, systems and structures,

Microeconomics,

Macroeconomics,

Economic policy

© 2022 Aleksandra Nagańska, Stanisław Cichocki, published by Faculty of Economic Sciences, University of Warsaw
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

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

Figures & Tables

Figure 1

Figure 2

Probit Model: Determinants of the Lack of Trust

Instrumental Approach: Determinants of Financial Inclusion

Linear Regression: Country Level

Variables and Data Sources

Linear Regression: Individual Level—Model III and Model IV

Linear Regression: Individual Level—Model I and Model II

Financial Inclusion Scores Breakdown

Paradigm

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