Author(s)

Menghan Fang ¹

Affiliation(s)

¹ School of Economics, Beijing Technology and Business University, Beijing, 100048, China

Corresponding Author

Menghan Fang

ABSTRACT

This paper uses data from the 2019 China Household Finance Survey (CHFS) to investigate the impact of financial literacy on household allocations to financial and stock assets. It is found that increased financial literacy promotes household participation in financial markets and increases household allocation to risky financial assets, especially stock assets. Further analyses indicate that increased financial literacy promotes household participation in the financial market, and with the accumulation of investment experience and the power of the Internet, households will be biased towards investing in risky assets, which will result in a significant increase in the proportion of investment in stock assets. In addition, the higher the total household assets, the more the household can afford to take risks and thus may allocate more risky financial assets. Household size, the number of people in the labour force, household self-employment in business and owning a home are negatively associated with risky asset allocation.

KEYWORDS

Financial Literacy, Risky Assets, Stock Assets, Financial Market Participation

CITE THIS PAPER

Menghan Fang, The impact of financial literacy on household financial asset allocation. Financial Engineering and Risk Management (2024) Vol. 7: 144-148. DOI: http://dx.doi.org/10.23977/ferm.2024.070418.

REFERENCES

[1] Guiso, Luigi, and Tullio Jappelli, 2008, "Financial Literacy and Portfolio Diversification", EUI Working Paper ECO 2008/31.
[2] Lusardi, Annamaria, and Olivia S. Mitchell, 2011, "Financial Literacy and Planning: Implication for Retirement Planning", NBER working paper 17078.
[3] Yin Zhichao, Wu Yu and Gan Li. Financial Availability, Financial Market Participation and Household Portfolio Choice [J]. Economic Research Journal, 2015, 50(03):87-99.
[4] Yin Zhichao, Song Quanyun and Wu Yu. Financial Literacy, Trading Experience and Household Portfolio Choice [J]. Economic Research Journal, 2014, 49(04):62-75. 
[5] Campbell, J.Y., 2006, "Household Finance", Journal of Finance, Volume 61, Issue 4, 1553-1604.
[6] Cocco, J.F., 2005, "Portfolio Choice In the Presence of Housing", Review of Financial Studies, Volume 18, Issue 2, 535-567.

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