Age Structure And The Efficiency Of Household Financial Portfolio

Recently,the size and speed of population aging in China have been increasing.For most households,the increase in the proportion of older members would change their risk preference and the decision on portfolio.When making the portfolio investment decision,the household need to achieve the maximum return under certain level of risk,which helps to increase the welfare and the speed of family wealth accumulation.The key problem of the tradeoff between risk and return is the efficiency of household financial portfolio.Due to the unobservability and heterogeneity of the household utility function,the method of efficient frontier has some limitations.Based on the existing domestic literature,this paper also uses the Sharpe Ratio,which measures the fund performance,as the proxy variable of the efficiency of household portfolio.This paper uses the household age structure as explanatory variable to investigate the impacts of population aging on the efficiency of household financial portfolio,and Chinese household financial survey(CHFS2011)for empirical analysis.As part of the households in the data sample do not participate in the financial markets of stocks,bonds,funds and gold,etc.,the Tobit model is utilized to solve the sample selection problem.The empirical analysis has the following results.In the full data sample,wealth and income significantly affect the efficiency of household financial portfolio.With the increase in household size and risk aversion,the efficiency of household financial portfolio decreases.The increase in the proportion of old members significantly promotes the efficiency of household portfolio,even though the average marginal effect is lower than other age groups.It could be explained by the appearance of negative factors such as risk aversion,heath status,etc.,as the age increases,which reduces the positive effects of aging,e.g.wisdom accumulation.By introducing the interaction term of the old members' ratio and risk aversion,this paper analyzes the channels by which the old members affects the efficiency of household financial portfolio.The estimation results show that the proportion of old members reduces the efficiency of household financial portfolio by increasing the household risk aversion.The results of urban-rural and regional differences analysis show that the household financial portfolio in the east is more effective,that the marginal effect of family education in the Midwest is higher,and that urban households are better than rural households.Based on the empirical results,the relevant suggestions and recommendations are given in this paper.First,the government should improve the regulation of financial system and encourage the innovation of financial institutions to provide financial assets that are suitable for the low-income households.Second,the redistribution policy such as,transfer payments,unemployment benefit,etc.,need to be implemented to help the low-income households to participate in the financial market more efficiently,which further accelerates the speed of wealth accumulation in these households.Third,the pension system and medical care in China should requires further improvement in order to alleviate the decrease in the marginal effects of aging.Finally,in order to improve households' income and welfare in the Midwest and rural areas,the economic and financial development in middle and western areas need to be balanced and the local financial innovation and financial education in the rural areas should be promoted.