Research On The Impact Of Financial Capability On Household Financial Vulnerability

Since the reform,China’s economy has developed rapidly,and the economic income and living standard of residents’ families have been continuously improved.In this process,the residents’ attitude towards family debt has changed dramatically,and the scale of family debt has increased continuously through increasing consumption or expanding business through debt.Although debt can improve family welfare by smoothing consumption or improving operation,the continuous rise of debt ratio increases the possibility of families falling into financial difficulties,resulting in family financial vulnerability.Family financial vulnerability reflects the ability of families to resist the impact of accidents,which is related to the financial welfare of residents’ families and the healthy development of macro financial system.The continuous deterioration of family financial vulnerability will not only lead to financial difficulties,thus reducing family financial well-being,but also affect the stable operation of the macro financial system and even lead to financial crisis.In fact,the financial crisis that broke out in the United States in 2007 is a typical case of the continuous deterioration of the financial vulnerability of the family sector,resulting in the damage of their own welfare and the disorder of macro financial operation.In addition to liabilities,family income,current assets,insurance security,demographic characteristics and other factors will also affect family financial vulnerability.Therefore,if residents want to maintain a low level of family financial vulnerability in the process of financial market participation,they must comprehensively consider these factors and make reasonable financial decisions,which requires residents to have a certain financial ability.As a special kind of human capital,financial ability refers to the ability of individuals to master certain financial knowledge and skills,have the opportunity to obtain basic financial products and services,and increase family financial well-being through rationality.The purpose of studying the impact of financial ability on family financial vulnerability is to enhance the attention of all sectors of society to the problem of family financial vulnerability and strengthen the education of residents’ financial ability,so as to improve the ability of families to deal with risk shocks,reduce family financial vulnerability and prevent financial risks.Based on the above,this paper takes the 2019 China Household Finance survey data as the research object,and empirically analyzes the relationship and impact mechanism between financial capacity and household financial vulnerability.Different from the existing literature,on the basis of measuring residents’ internal abilities such as financial knowledge,financial behavior and financial attitude,this paper brings the external environmental factor of financial availability into the measurement index system of residents’ financial ability,and uses the factor analysis method to measure it;In order to measure family financial vulnerability,this paper first constructs the index of family emergency security fund to reflect the current financial situation of the family,and then uses the generalized three-stage least square method to include the factors affecting family financial status,such as family size,average years of education,number of formal workers,proportion of students in school,proportion of infants and young children,proportion of the elderly,health status of members,etc,In order to measure the possibility of family financial distress in the future,that is,family financial vulnerability.Based on the above variables,this paper uses OLS model to empirically study the relationship between financial ability and family financial vulnerability,and fully considers the endogenous problem of financial ability and family financial vulnerability.The empirical results show that:(1)financial ability can significantly reduce household financial vulnerability,and the effects of financial knowledge,financial behavior,financial attitude and financial availability on household financial vulnerability are significantly negative;(2)Financial capacity reduces household financial vulnerability by easing credit constraints,promoting commercial insurance participation and enhancing portfolio diversification;(3)The impact of financial capacity on household financial vulnerability has urban-rural and regional heterogeneity.Specifically,financial capacity plays a greater role in alleviating household financial vulnerability in rural areas and central and western regions.This paper provides empirical research evidence for understanding the relationship between financial ability and family financial vulnerability,helps to find the factors affecting family financial vulnerability,and provides a new reference for reducing family financial vulnerability and preventing macro financial risks.The countermeasures and suggestions of this paper are as follows:(1)improve the financial ability cultivation system,and comprehensively improve the residents’ financial ability from the aspects of popularizing financial knowledge,improving the diversification of residents’ participation in the financial market,guiding residents to establish a correct financial attitude and improving residents’ financial availability;(2)Build a multi-channel learning platform for financial ability,give full play to the advantages of wide coverage of online channels,fast information dissemination,strong interaction and good learning effect of offline channels,and promote the rapid development of financial education;(3)Improve the financial environment,constantly optimize the family’s credit,insurance,investment and other financial behaviors,and give better play to the role of financial ability in alleviating the family’s financial vulnerability;(4)Pay attention to the improvement of the financial ability of families in central and Western China and rural families.