Finance Education,Financial Literacy And Household Investment In Risky Assets

This thesis uses the China Household Finance Survey(CHFS)conducted by Southwestern University of Finance and Economics in 2013 to study the relationships between finance courses,financial literacy and household investment in risky asset.Firstly,the thesis studies the role of heads of households’ participation in finance courses in improving financial literacy.Empirical results show that taking finance courses significantly improves heads of households’ financial literacy.Specifically,for investors who are risk-averse,their improvement in financial literacy is far greater than that of risk-loving and risk-neutral investors when all of them have taken formal finance courses.Further research shows having been taken finance courses or owning higher financial literacy,heads of households are more likely to invest risky assets.The enhance of financial literacy has a greater effect on promoting the probability of investing stocks and gold than on that of investing funds and bond,while taking finance courses has the same effect on improvement of investing all four risky assets.Besides,having been taken finance courses or owning higher financial literacy,heads of households tend to allocate more money to invest risky assets.The enhance of financial literacy has a greater effect on promoting the investment of stocks and funds than on that of gold and bond,while taking finance courses has no heterogeneity on investment allocation to all four risky assets.Then,we studied the impact of finance courses and financial literacy of heads of household on diversification and the Sharpe ratio of their portfolios.The results show that the financial literacy of heads of households has a significant positive impact on the diversification of their portfolios.Moreover,heads of households’ financial literacy and portfolio’s diversification level both have positive impact on the Sharpe ratio of portfolios.For further study,we find diversification of household portfolios has an indirect mediating effect between the financial literacy and the Sharpe ratio of the portfolio,that is,the positive impact of financial literacy on investment efficiency is partly achieved by trying to allocate more assets and diversify portfolios.Participation in finance courses can also promote diversification of the investment portfolio at the 10% significant level,but has no impact on the Sharpe ratio of portfolios.Therefore,the results of this paper indicate that finance courses cannot be used as a proxy for financial literacy,and the two variables cannot be completely equivalent,because taking finance courses cannot transform into financial literacy completely.Finally,we explore the heterogeneity of finance courses,financial literacy,and household investment in risky assets between urban and rural areas.The empirical results show that the financial literacy of household investors in rural areas is significantly lower than that of urban areas,and the participation of finance courses in improving the financial literacy of investors in rural areas is significantly greater than that of investors in urban areas.In addition,we find that compared with household investors,the positive effect for increasing financial literacy is less in promoting the participation of risky assets and allocating more money in risky market,but lager in improving the Sharpe ratio of their portfolios.