The Impact Of Financial Literacy On Family Debt Decision-making

In the traditional concept,Chinese households prefer to save money rather than debt,but with the rapid development of the economy and the growing prosperity of the financial market,this traditional concept is quietly changing.In the 10 years from 2008 to 2018,the growth rate of deposits in the residential sector dropped from 18% to about 7%.Our resident deposits dropped sharply.In August 2018,the balance of RMB deposits in Chinese financial institutions was 175.24 trillion yuan,an increase of 8.3% over the same period of last 39 years.However,the growth rate of deposits in Chinese financial institutions has never fallen below 9% over the same period of last 39 years.At the same time,the debt level of households in China has changed dramatically.The total debt of households has increased 10 times,the leverage ratio of households has increased from 18% to 50%,and the debt-income ratio has also increased from 20% to 80%.Whether reflecting the macro-level of household leverage or the micro-level ratio of debt to income,great changes have taken place in the past ten years.It is not difficult to see that the household debt decision-making of Chinese residents has undergone tremendous changes.China?s household debt ratio has approached the level of the United States.The last subprime mortgage crisis in the United States was caused by the poor debt decision-making of the Americans.The phenomenon that the Chinese people are becoming more and more willing to borrow should be paid enough attention to.What factors led to the change of the household debt decision-making in China? This paper tries to study this problem from the perspective of financial literacy.This paper mainly draws the following conclusions:Firstly,Using the data of the China Family Finance Survey Project(CHFS)of Southwest University of Finance and Economics in 2013,it is found that the general financial literacy of Chinese households is not high.Factor analysis is used to construct the index F of subjective financial literacy of Chinese households.The higher the score of financial literacy,the lower the level of financial literacy of representative households.Then the distribution of financial literacy level of Chinese households is investigated according to different demographic characteristics.It is found that the financial literacy level of Chinese households is quite different,and the financial literacy level is generally low;the financial literacy level of female-headed households is generally higher than that of male-headed households;the distribution of financial literacy level according to age is as follows: the older the head of household,the lower the financial literacy level of the extended family;the higher the educational level of the head of household,the higher the financial literacy level of the family.However,there is also a low level of financial literacy in the group of graduate students and above,so academic qualifications can not be used as the proxy indicator of financial literacy;the higher the income,the higher the level of family financial literacy,which may be related to their more funds to participate in the financial market;the level of financial literacy of non-agricultural households is generally higher than that of agricultural households,which is related to the financial literacy level of non-agricultural households.There is a close relationship between the gap of education level between urban and rural areas and the different opportunities of participation in financial markets between urban and rural areas.Secondly,Families with high financial literacy are more willing to choose debt to smooth their household consumption and improve their welfare;Families with high financial literacy are also more willing to choose such a formal way as bank loans to carry out debt,which will reduce the occurrence of debt risk and promote the healthy development of the credit industry;Families with high financial literacy may agree on the repayment period when they are in debt.More sex,which is beneficial to both borrowers and lenders,can reduce disputes to a certain extent,and promote the harmonious development of society;the improvement of financial literacy level will also reduce the debt burden of household residents,so that the debt level can be sustained by their families.There is a significant correlation between income and various indicators of household debt decision-making.The higher the income,the more likely the household is to have debt,and the choice of the way of debt is mostly bank loans.Even if the household is liable through other ways,the more likely it is to agree on the repayment period when borrowing.The contributions of this paper are mainly reflected in the following aspects:Firstly,using the survey data of China Family Finance Survey Project(CHFS)of Southwest University of Finance and Economics in 2013,and using factor analysis method to construct the score index of Chinese household financial literacy,five representative demographic characteristics are selected,and the distribution of financial literacy levels grouped according to these five demographic characteristics is systematically investigated by using quartile method.Secondly,through the construction of relevant variable indicators of household debt decision-making in China,we verify the impact of financial literacy on household debt decision-making.To construct indebtedness index,indebtedness path index,indebtedness agreement repayment period index and indebtedness degree index,the probit model and least square method are used for regression analysis respectively.The regression results are very ideal and significant at the level of 1%.These results have played a confirmatory and supplementary role in the previous studies to varying degrees.