Do you trust financial services companies? According to the latest Chicago Booth/Kellogg School Financial Trust Index, it seems as though public trust in financial services companies is coming up a bit short.
Financial services companies as a category include everything from investment companies to banks to real estate brokers. The latest Trust Index shows that just 26 percent of Americans trust the financial system, a gain of 3 percent over last quarter's figure. Thirty-nine percent of Americans trust banks, while just 17 percent trust large corporations.
"Trust is an essential characteristic for people to invest. Truth is an essential characteristic to develop successful businesses and institutions, and for the economy and markets to work well," Zingales explained. "It is especially important for the markets since it deals with so much anonymity combined with high stakes.
"Trust is particularly important to the financial industry, because a lot of what we do is delayed exchanges," Zingales added. "People have to trust that there money will go to where they think it's heading and will be protected."
Trust is violated when financial institutions and service companies seem to be acting in their own best interests rather than in the interest of their clients and customers. When you "think you could be easily deceived, your trust is altered," Zingales said.
While trust in financial institutions and financial services companies has improved, the Trust Index found that fewer people trust the real estate market to produce solid returns.
The Trust Index survey found that fewer people think that home prices in their area will increase in the next 12 months, while a constant 20 percent believe their home values will decrease.
The Trust Index also looked at attitudes toward "strategic default" on mortgage loans (when homeowners default on their mortgage even though they may have the ability to pay it). While the majority of homeowners surveyed (72 percent) said it was very important to maintain a good credit score so they could borrow again in the future, they also perceived that the frequency of strategic default has increased (from 31 percent in March to 35 percent in June).
"Survey respondents are increasingly convinced that if they default, the lender will not go after them with a deficiency judgment, and this conviction is strengthened if they know someone who defaulted strategically," Zingales said.
When it comes to financial reform, the survey found that nearly 60 percent of Americans want stronger regulation of the financial system. While that would seem to indicate a lack of trust, Zingales takes a different view.
"I think that if (financial reform) is done well, it could increase the trust Americans have in financial services," he said.
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Personal Finance - Do You Trust Financial Services Companies? Trust Index Says Not So Much
(c) 2010 Ilyce Glink