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Financial literacy and fraud detection

Engels, C.; Kumar, K.; Philip, D.

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C. Engels

K. Kumar


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 provides 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.

Journal Article Type Article
Acceptance Date Jul 10, 2019
Online Publication Date Jul 28, 2019
Publication Date 2020
Deposit Date Jul 11, 2019
Publicly Available Date Jan 28, 2021
Journal European Journal of Finance
Print ISSN 1351-847X
Electronic ISSN 1466-4364
Publisher Taylor and Francis Group
Peer Reviewed Peer Reviewed
Volume 26
Issue 4-5
Pages 420-442
Public URL


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