Financial Market Participation,Financial Literacy And Household Financial Vulnerability

Preventing and resolving major financial risks is one of the central tasks of national security work in the new era.As an important indicator of financial risk in the household sector,household financial vulnerability refers to the situation or possibility of a household experiencing insufficient income or debt default,which comprehensively reflects the financial risk of the household and its ability to cope with negative shocks.The increasing leverage ratio of China’s residential sector has increased the debt burden of households,and the lack of liquidity caused by the excessive proportion of real estate has increased the possibility of families falling into financial difficulties.It is worth exploring how to reduce household financial vulnerability and prevent the accumulation of financial risks at the micro level.With the gradual improvement of the development level of China’s financial market,the 20th National Congress of the Communist Party of China emphasised on improving the functions of the capital market,increasing the proportion of direct financing and increasing the property income of urban and rural residents through multiple channels,while investment in risky financial assets is one of the important ways for residents to obtain property income.Under the background of comprehensively implementing the reform of stock issuance registration system,the choice of financial assets is more dependent on investors’ own ability to judge returns and identify risks.Financial literacy is particularly important,and its level is likely to affect the income and risk of households in the process of participating in the financial market.Therefore,for the ultimate purpose of macro financial stability and the practical need to enhance household welfare,this paper examines the possibility of financial market participation and financial literacy to mitigate household financial vulnerability from a micro-household perspective.This paper uses data from the China Household Financial Survey(CHFS)for four periods from 2013 to 2019 as the research sample,and constructs an empirical model to analyse the impact of household financial market participation and financial literacy on household financial vulnerability,focusing on the moderating role of financial literacy,and conducting heterogeneity analysis at both the financial product and household levels,while further examining the differences in the impact of financial literacy measured by different indicators.The results show that household financial market participation and financial literacy both contribute to reducing the likelihood of household financial vulnerability,and financial literacy increases the effect of financial market participation on reducing household financial vulnerability.After endogenous treatment and other robustness tests,the results are still significant.The heterogeneity analysis shows that at the financial product level,financial literacy amplifies the role of traditional financial markets in reducing household financial vulnerability,but this moderating effect is not significant for internet-based financial products.At the household level,rural households’ participation in financial markets is less effective in mitigating household financial vulnerability than urban households,and is not conducive to financial literacy to reduce household vulnerability through the channel of financial market participation.Further examining the different categories of financial literacy,the results show that subjective financial education experiences and financial information concerns also enhance the dampening effect of financial market participation on household financial vulnerability.The financial literacy of other household members,while significantly reducing household financial vulnerability,does not do so through the channel of household financial market participation.Based on the above results,it is recommended that households improve their financial literacy and participate in financial markets sensibly.The government should improve the financial market environment,strengthen the regulation of the financial system,balance regional financial development and increase investment in financial education.