Study On The Relationship Between Financial Literacy And Household Wealth

In the background of global aging, aging accounts the most part of population structure. It is a reality problem how to prepare for one’s old age. Meanwhile the reforms of social security system in countries have a common trend that individual take part in more and more. The situation highlights the role of financial literacy and financial education. Many governments constitute the strategic of financial education, characterized by OECD and Americans. These countries have done the survey and research. OECD builds a website to provide a unique policy forum for governments to exchange views and experiences on financial literacy and financial education. China is the same and has a special circumstance-asset price bubble, which has been pushed by the fast development of China economy and huge foreign capital inflow. Chinese people should face one more problem how to keeping value or increment of their wealth. All these problems should been solved in frame of household finance. In 2006 American finance association annual meeting, household finance had been proposed as the formal area and new trend in finance research which had been composed by corporate finance and capital market. As the basic unit of economic decision-making, the family which links the production and consumption form the micro-foundation of macro-research. Analysis of the policy and economy circumstance should base on it.Therefore, we take the relationship between household wealth accumulation and financial literacy as our focus. Firstly, we get a profile of financial literacy in Chinese through the statistical analysis of the household survey data, which is from Tsinghua University in 2012 and 2011 and has specially designed section of financial literacy in 2012 questionnaire. Statistic shows that the level of financial literacy in Chinese is little bit low regardless of subjective measurement or objective measurement They are familiar with the financial products which have been in common usual. For the literacy in stock and fixed income security, they had got a little bit low scores in objective measurement and in contrast a little bit high scores in subjective measurement. And the great worry is that only 10% of interviewees could rank the risk of financial products correctly. The entire situation is disadvantageous for the prosperity and development of china economy and financial industry.Secondly, the quantile regression showed that the financial literacy has a significantly positive effect on household wealth accumulation after controlling other factors; the influence degree of the financial literacy variable is even greater than income variable. This highlights the important role of financial literacy in the era of knowledge economy. To eliminate the bi-directional relationship between financial literacy and wealth which caused by endogenous, we also use instrumental variable for robust test. All results show consistent.In life cycle framework, the consumer decision should be made through maximize the utility function, and wealth accumulation was realized by multiple decisions. Based this theory we find out three channels which the financial literacy may be affect wealth accumulation, which includes plan (propensity of planning, implement of plan and adjustment of plan), financial market participation(stock market participation, the purchase for fund products and insurance products) and portfolio diversificationLimited rational people plan for future, and the one with a higher financial literacy be more inclined to plan. Financial literacy can significantly promote the household financial plan, saving for retirement or long-term investment for retirement. And we take financial literacy as mediator variable in research of financial market participation, go deep to explore the effect of education variable, variable of economic or management majors and series variables of information channels. The probit regression and SEM result all show that financial literacy should promote the stock market participation and the purchase of fund products and insurance products. Education is a base factor to influence financial market participation, and different information channel play different influence. Information from financial institute, the third parties and internet have positive effect on stock market participation. And information channels have small effect on household fund asset, only affect positively when the information channels coincide with the sales channels of fund. We analyze the saving insurance in the framework of the demand theory of insurance and find out the positive relationship. Finally, we care about household portfolio diversification; diversification degree of household portfolio in China is far below that of America, financial knowledge do has significantly positive effect on the degree of diversification in household portfolio.This paper explores the wealth accumulation in first from the perspective of micro finance. And we also integrate economics, psychology and behavior theory to construct the interdisciplinary framework. The conclusion of this research provides the policy space and economic basis for financial literacy survey and financial education in China, could promote and enhance investor education. And it also provides a practical way for improvement of household financial management.