The Impact of Financial Literacy on the Scale of Fraud

The topic of financial fraud is often raised in various publications due to its significance. Increasing the level of financial literacy among the population is frequently suggested as a way to reduce the prevalence of financial fraud. However, there is a lack of research on the impact of financial literacy on financial fraud, and the studies that do exist are based only on logical arguments derived from economic theory. The purpose of this article is to examine the impact of financial literacy on financial fraud in Russia. We used data from the Ministry of Internal Affairs on crime rates in the country, as well as estimates of financial literacy levels among Russians published by NAFI (National Agency for Financial Research) between 2008 and 2023. Given the ongoing link between financial fraud and the use of cash in money laundering the database of analyzed parameters includes data from the Central Bank of Russia on the dynamics of cash inflows. The study used correlation analyses. The article suggests that financial literacy has limited usefulness in protecting the population from financial fraud. The strong positive correlation between the number of fraud cases and the average level of financial literacy suggests that, as people acquire certain financial knowledge, they become more interested in various financial products and are more likely to fall victim to financial fraud. While financial knowledge alone may not be enough to deter fraudsters who exploit the trust of citizens, increased efforts to develop behavioral skills among the public, such as through the “Hang Up the Phone” campaign, seem to be a promising approach to strengthening the population’s ability to protect themselves against financial fraud. However, a more effective approach would be to strengthen the financial system’s protective measures, particularly for banks, in order to identify and halt suspicious transactions of customers who may have fallen victim to fraud.