How does social trust influence household financial decisions: An explanation based on the "Mystery of Limited Participation"

China's financial market has long been characterized by a stark contrast between high savings and low participation in financial assets, a phenomenon widely recognized as the "limited participation puzzle." This imbalance—where households maintain substantial savings deposits but show limited engagement in equity, fund, or bond markets—has become a key constraint on the efficient allocation of household wealth and on the high-quality development of the financial sector.Trust serves as the foundation for transactions and cooperation, exerting a significant influence on residents' subjective financial attitudes and demands. Exploring the role of social trust as an informal institutional factor in household financial decision-making provides an important perspective for understanding this puzzle. Using data from the China Family Panel Studies (CFPS), this study examines the intrinsic connection between social trust and household financial participation from the perspective of informal institutional dimension. The research findings indicate that social trust can effectively promote household financial participation; the primary mechanisms include reducing interpersonal relationship expenses, enhancing digital trust levels, and strengthening self-efficacy. Social trust demonstrates positive synergistic effects with the digital economy and exerts more pronounced impacts in regions with weak formal institutional development. For urban households and those with higher education levels, the role of social trust in promoting household financial participation is particularly significant. This study offers insights and references for studying micro-financial behaviors from a social capital perspective and provides guidance for policy design.