The Impact Of Income Uncertainty On Household Financial Asset Allocation

It is a key factor in determining the long-term standard of living that relatively limited resources in the household have arranged between consumption and a variety of investment(including physical capital,financial capital and human capital,etc.).Classic portfolio theory thinks that the decentralized investing by households can reduce risk;thereby it can improve their living quality.However,compared with other countries,the saving rate of Chinese residents is extremely high.Precautionary savings theory provides such an explanation of China's high saving rate:the household has different problems in employment,housing,education,health care,etc.,and the increase of these expenses in the future results the decrease of household income,that is the more income uncertainty.So for precautionary saving motive,the household will provide protection for themselves through savings.Centralized household financial asset structure hinders the efficient allocation of household assets,thus reducing the efficiency of macroeconomic activity,which constrains the healthy development of the family finance.Under the circumstance of interest rate liberalization and RMB internationalization,Centralized household financial asset structure has become a limiting factor in development of China's family finance.In the short term,it is difficult to change the situation of centralized household financial asset structure in our country.So there is important practical and policy value in researching the effect of family income uncertainty on the financial assets allocation,and it is helpful to understand the choice behavior of household income asset allocation.In this paper,based on the perspective of precautionary saving,we have analyzed household financial asset allocation behavior theoretically and systematically.On this basis,we have used the nationally representative Southwestern University of Finance and Economics(SWUFE)China Household Finance Survey(CHFS)data from 7442 families to study the impact of income uncertainty on household financial asset allocation empirically.This paper focuses on that how family income uncertainty affects the choice of the number and variety of financial assets to diversify their investment decisions.It is helpful to provide the policy for the optimization of the household asset structure.The results of our study indicate that the families with less income uncertainty tend to hold more non-deposit financial assets,and the variety of financial assets are also more diversified;income under conditions of uncertainty in the future,families will hold more non-deposit financial assets to enhance the expected return of the portfolio,and diversify the portfolio with various different financial assets to control investment risk.