The Impact Of Household Debt On Household Consumption

At the 2006 annual conference in finance,Campbell[1] proposed that household financeshould be treated as an independent field of financial research,since then,the importance of the traditional household financial sector has gained similar research attentions as asset pricing,corporate finance and other areas.Since then,more and more scholars regard household finance as an independent study.With the continuous development of society,the importance of household finance becomes increasingly apparent.In real life,with the rapid development of China's market economy,the traditional concept of consumption of young consumers is gradually changing,and they are more open to the idea of spending their future income in advance,and this trend is also expanding and is accepted by the general public.The rapid growth of household debt and the rapid expansion of consumer spending together have become an important part of China's economic development.In this context,the influence of the structure of household debt on consumption regardless of how the spending plan for the development of the household itself,or for the government to develop sound macroeconomic policies are of great significance.Studies on the impact of consumer factors,where according to the life cycle-the theory of permanent income,household debt will have a significant impact on consumption.Considering the factors that influence household consumption,including age,education level,household income,as well as the control variables,this paper studies the influence of household debt levels on household consumption based on the assumption that,there is a non-zero correlation between the two factors.The aim of this study is to aid households to develop rational consumption plans as well as to serve as a reference to government bodies to develop appropriate and flexible economic and fiscal policies to support the long-term sustainability of healthy economic development that benefit both the country as a whole as well as individual consumers.In this paper,for the first time detailed household financial data CHFS(2011)isanalyzed.The analysis is based on large samples of micro data model from the three levels of analysis of the relationship between household debt and consumption.First,from the perspective of the first empirical test,whether household debt has a significant impact on household consumption is scrutinized,and the empirical analysis shows that household debt has a significant positive correlation on consumption.Secondly,empirical analysis of influences of different types of debt on household consumption is conducted based on the previous step of analysis.The empirical results show that household debt whether for housing or consumer durables non-durables consumption demonstrate more significant impact on consumption.Vehicle finance as non-durable goods and household consumption of durable goods both showed significant positive effects and there is greater influence for consumer durables.The impact on consumption of agricultural and business debts to total household consumption,consumer durables and non-durables consumption are not significant.While consumption affect other types of debt to total household consumption of non-durables show positive effects.Finally,this paper analyzes the distinction between people of different characteristics who are affected by household debt on consumption.Criteria include age,education background,household income and the number of household members was considered.The empirical results show that when the age of the leading member of a household is 20-35-year-old household,a household demonstrates minimum debt elasticity of consumption.For families with only primary education,the relationship between the level of household debt and consumption is not significant,but the households with the level of secondary and higher education there is a strong significance and elasticity levels remained stable;in different income groups of families,their debt to total consumption relationship is significant,though the coefficient of the gap is not that large.The findings roughly led to the argument that an increase in debt would promote consumption in households with varying income levels,and the degree of influence did not differ dramatically.It also further validates the main argument of this article that household debt and consumption show a significant positive correlation.Through empirical results,this paper found that household debt has encouraging effect on household consumption;so when formulating relevant policies,authorities can stimulate domestic demand to promote Chinese economy through increasing consumption debts.Secondly,we can see the fact that different kinds of household debt by empirical analysis of consumption play different roles,therefore,a comprehensive policy makers should focus on stimulating effect of different types of consumer credit that consumers demand,to build and perfect the mechanism of consumer credit system of the country.In addition,the empirical analysis in this paper also found that household income exerts positive impacts on consumption,how to improve the stability of people's income can be proved as an effective approach to stimulate consumption and thus promote economic development.Based on the above empirical analysis,corresponding policy direction can be recommended.First,policy makers should improve the existing credit systems,guide consumers to change their attitudes to promote consumer finance market.Second,the empirical results show that different types of household debt and have different effects on household consumption.The paper suggests a system for key projects,such as mortgage and automobile finance service,and also recommends strengthen the leading effect of these major types of consumption.At the same time,authorities should extend of consumer credit system in the longitudinal direction,and constantly offer abundant consumer credits,and accomplish a diversity of development projects to help meet different types of growth in consumer demand.Third,the steady increase in household income is expected to reduce revenue uncertainty.Fourth,it is recommended to improve the system of consumer credit,since consumer credit continue to narrow the gap between different groups,and gradually increase the scope of consumer credit,and then improve the transverse expansion of consumer credit system.