The Impact Of Financial Literacy On The Financial Vulnerability Of Chinese Urban Households In The Context Of Digital Financial Inclusion

"Since the 14 th Five-Year Plan,the government has paid great attention to people’s well-being and has included it in its socio-economic development indicators in order to promote consumption and economic growth.As leverage in the residential sector increases in line with economic growth,household risk is rising and the likelihood of households falling into financial distress increases,which is detrimental to macroeconomic stability.Financial literacy affects household financial vulnerability by influencing household decisions on credit,savings,asset allocation,consumption and so on.By providing richer external information,digital inclusive finance can alleviate households’ information constraints and improve their financial literacy by making rational financial decisions,which in turn can further reduce households’ financial vulnerability.Therefore,it is of practical and theoretical significance to study the impact of financial literacy on the financial vulnerability of urban households in the context of digital financial inclusion.This paper takes a micro perspective of households and uses samples from the China Household Finance Survey(CHFS),a three-year household tracking survey conducted by the Southwest University of Finance and Economics in cooperation with the Institute of Finance of the People’s Bank of China,in 2013,2015 and 2017,as well as 2019cross-sectional data,to construct an empirical model to study the impact of financial literacy on household financial vulnerability in the context of digital inclusive finance.In addition,the impact of financial literacy on the financial vulnerability of households in the context of digital financial inclusion was studied using the "same region" approach.In addition,"average financial literacy score of households other than oneself in the same region plus total score" and "financial literacy score of households in the second lag plus total score"were used as instrumental variables to address the endogeneity of the model,and substitution variables and replacement data were used to test the robustness of the model.Robustness tests were conducted using substitution and data replacement methods.Heterogeneity analysis was conducted to investigate the impact of financial literacy on the financial vulnerability of urban households in different regions,ages,education levels,income levels,consumption levels and asset levels.Through the empirical test and analysis of this paper,the following conclusions are obtained:(1)Financial literacy in China is generally low and needs to be improved.At the same time,the increase in financial literacy significantly reduces the financial vulnerability of urban households,that is,the higher the level of residents’ financial literacy,the lower the financial vulnerability of households and the less likely that households will fall into crisis.(2)The effects of household financial literacy on different financial vulnerabilities are all significant,as shown by the significant positive effect of financial literacy on households in low vulnerability and the significant negative effect of financial literacy on households in medium and high vulnerability.Also,the effect of different financial literacy on the financial vulnerability of urban households is different,and the effect of subjective financial literacy and objective financial literacy on the financial vulnerability of urban households is significantly negative.The effect of low financial literacy on the financial vulnerability of urban households is significantly negative,but the effect of medium and high financial literacy on the financial vulnerability of urban households is not significant.(3)The test of heterogeneity of financial literacy on household financial vulnerability found that financial literacy had a greater effect on mitigating financial vulnerability for households in the middle and old age groups,households in the middle and high consumption groups,households in the middle and high income groups,households in the low asset group,and households in the central and middle regions.(4)Digital inclusion has a positive impact on financial literacy,and the better the state of development of digital inclusion,the higher the level of financial literacy.vulnerability of urban households,and the total digital financial inclusion index can effectively mitigate household financial vulnerability.Further,the empirical study concludes that digital inclusive finance can mitigate household financial vulnerability by enhancing household financial literacy.Based on the findings of the study,this paper proposes the following policy insights:Firstly,the financial literacy level of residents from all walks of life should be raised comprehensively.At the same time,the government should pay attention to the level of financial literacy of disadvantaged groups and focus on the current situation of financial literacy development of different groups to raise the level of financial literacy of residents in order to alleviate household financial vulnerability.Secondly,the government should increase the penetration and coverage of digital inclusive finance,strengthen the construction of incentive systems for digital inclusive finance and deepen financial services in different areas.