07.06.2020 Business Features

Trust And Financial Excesses

By Patrick Baah Abankwa
Trust And Financial Excesses
LISTEN JUN 7, 2020

Welcome to another week of financial learning. We started a journey towards financial independence by tackling ways to managing financial excesses.

In the past two weeks, we have looked at a lack of planning and impulse buying as causes of financial excesses. In the same vein, I discussed a few things that we can all do to overcome the aforementioned challenges.

I will discuss yet another enemy of financial discipline today; lack of trust for financial institutions and regulatory breaches.

The Webster dictionary defines trust as assured reliance on the character, ability, strength, or truth of someone or something.

Perceptions of trust can be non-conscious, formed almost immediately, and biased by subtle factors. Trust is essential to relationships in all facets of life — personal, professional, and financial.

Trust is a real and important consideration for consumers, who experience it as a feeling that is built over time or, in some cases, irreparably broken in a single transaction.

According to EY Global Consumer, the foundations of trust are built on fulfilling the most basic expectation that consumers have of all financial institutions: to protect their money and identity.

Almost everyone uses air in traveling trust airlines to deliver their luggage to the right city, safely, on time, and in good shape. We also trust grocery stores to provide safe and healthy food — efficiently, conveniently, and cost-effectively. Many people have also long expected that banks and financial advisors will do the right thing for them.

Any hiccup in the delivery of a banker customer service delivery affects the trust between the two parties. In this particular situation, it is the customer that loses more trust and become skeptical in future transactions.

Findings from EY’s 2016 Global Consumer Banking Survey showed a profound finding of trust. In the report, banks are largely trusted to keep consumers’ money safe. On the other, relatively few customers completely trust banks to provide unbiased advice that puts their needs ahead of the banks’ objectives.

Recent financial clean up in Ghana is fast becoming a case in point for many people who were negatively affected at the initial stages of the process. Some customers had their funds locked up for months which affected their businesses and life.

Some customers had to move from one friend to another just to make ends meet whiles having an appreciable account balance inaccessible.

Trust to a large extent explains some shortfalls in the relationship between savings and formal financial institutions. Trust affects the willingness of individuals to use a particular financial institution based on their subjective assessment of its reliability according to a report by Dean Karlan in his paper titled “SAVINGS BY AND FOR THE POOR: A RESEARCH REVIEW AND AGENDA”.

Regulatory barriers often defended as enhancing overall trust in an institution, frequently include requirements such as “know your customer” rules, which can hinder participation in the banking system for the poor.

Guisoet al. (2004) measures how trust and the development of financial markets are related in Italy using a large panel survey, and finds that low-social-capital provinces use fewer cheques and hold more cash.

Similarly, Coupé (2011) looks at representative survey data from the FINREP Ukraine survey and reports that more than half of the sample save in cash at home, with those who self-report as having low trust in banks being 10–15 percentage points more likely to keep all their savings in cash.

Dupas et al. (2012) in western Kenya, with a sample of 1565 unbanked individuals, finds reasonable take-up (62 percent) but lower active usage (18percent) of free savings accounts.

A qualitative survey on a subset of study participants finds that low trust in the bank is often cited as a key concern that deters people in their sample from using formal bank accounts.

As many as 15–37 percent of those who did not open or use the free savings account with one of the two participating banks cited unreliability as a concern, and 7–24 percent mentioned the risk of embezzlement by the given bank as a concern.

In contrast, Djankovet al. (2008) reports on a survey of 4765 Mexican banked and unbanked households, of whom 2182 households did not have a bank account. When asked to pick their main reason for not having a bank account from a list of options, only 2 percent of the unbanked sample mentioned not having confidence in the institution as opposed to 89 percent who stated they did not have enough money and 6 percent who said that they did not want an account.

Distrust for some financial institutions not only affect our savings pattern. It sometimes affects retirement decisions.

The survey of 927 workers without access to a retirement plan on the job asked how trustworthy they find information from their “primary financial institution,” their “HR representative,” or “financial institutions in general.”

The results suggest an association between distrust in financial institutions and the likelihood that workers will choose to stay in a retirement savings plan if enrolled automatically. This was contained in a survey by The Pew Charitable Trusts.

Trust is based on tactical “promises” that banks implicitly or explicitly make relative to transactions or tasks (e.g., that deposited money will be available after a certain period or that mortgage application will take no more than an hour).

Customers are easily frustrated when they experience errors than to delight them through competently processing basic transactions. However, the negative impacts are not as severe as with the foundational or tactical levels of trust, because most operational errors can be corrected fairly easily and quickly.

Many people, therefore, rely on these mishaps to resort to financial excesses. The old adage goes that, in the land of the blind, the one-eyed man is the King.

Yes, I agree that the banking sector went through a challenging moment and is recovering now.

Some banks and other financial institutions have indeed gone into extinction. Not everyone who had their funds locked up has indeed received all in full.

Whiles acknowledging the bottlenecks, there are still many “standing” Universal banks that did not go down. They stood the test of time and continue to run proper corporate governance practices and the necessary liquidity requirements.

Link up with them to rekindle your savings and investment journey. As I always say, the first reason for saving and investing is security and not returns.

As we learn from our mistakes, we ought to make the right investing decisions in the future. You cannot eat your cake and have it!

My favorite story topic when I was in JHS was “Not all that glitters Is Gold” Discuss.

This statement is still relevant today as we begin to rebuild trust for our financial institutions.

Trust should not be the used as an excuse for failing to plan for your retirement.

Trust should not be the reason why you fail to have an insurance policy.

And of course, trust should not be a blockade in your quest to attaining financial independence.

I wish everyone a wonderful and memorable week!


My Profile

Patrick Baah Abankwa is a chartered banker with over 6 years’ experience in main stream banking having worked in various capacities. He is currently the Business Development and Corporate Affairs Manager at the Chartered Institute of Bankers, Ghana.

He has been a qualified member of the Chartered Institute of Bankers, Ghana with a good membership standing since the year 2013.

He also holds EMBA and BA from Kwame Nkrumah University of Science, Technology, and the University of Ghana respectively.

Patrick is the originator of the daily epistle dubbed “Savings Tip of the Day” which has been running for over a year on WhatsApp and Facebook.

Patrick has also been teaching on the Topics Savings, Investment and Financial Independence for over 2 years and a research fellow for ILAPI Ghana. He runs a financial channel on Youtube by name “Patrick TV Gh” and has appeared a couple of times on the business segment of TV3 News 360.

Patrick is into youth facilitation and counselling. He can be contacted via [email protected] and or 0243984492.

Follow Patrick on the various platforms for more education:


Instagram: @PatrickTVGH

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