Research On The Influence Of Financial Literacy On Household Indebtedness

In recent years,with the improvement of living standards of residential households and the continuous innovation of financial products in the financial market,the consumption concepts of Chinese residential households have changed,causing significant changes in the indebtedness behavior of Chinese households and an increasingly large scale of indebtedness.At the same time,households are facing more choices in formal and informal debts,which increasingly requires them to have certain financial literacy to avoid making unreasonable debt decisions.Therefore,it is particularly important and urgent to study the impact of financial literacy on household indebtedness.Using the China Household Finance Survey database(CHFS)2013、2015 and2019 tracking survey data,this paper first conducts a descriptive statistical analysis of the data to develop an arrative on the status of variables such as household indebtedness and financial literacy levels.Further,using Chinese household financial data to construct balanced panel data and using a panel fixed effects model,we empirically investigate the effects of financial literacy on household debt holdings,debt size,and over-indebtedness.The instrumental variables approach is also used to address the endogeneity issue,and the moderating effects model is used to verify the mechanism of the impact of financial literacy on household indebtedness,and finally the robustness test analysis is conducted.It is found that:(1)an increase in the level of financial literacy significantly promotes the probability of holding debt and the size of debt in residential households;(2)Financial literacy is significantly and positively related to over-indebtedness,mainly because household heads with high levels of financial literacy are prone to overconfidence and thus make poor debt decisions;low and moderate levels of financial literacy reduce the likelihood of household overindebtedness,but the results are not significant;(3)Mechanism analysis shows that the effect of the influence of financial literacy on household indebtedness varies depending on the self-control ability of the household head.Based on the findings,this paper suggests that the government should carry out a series of financial literacy activities,encourage all people to improve their financial literacy,encourage financial institutions to innovate and develop financial products,attract residents to participate in the financial market and stimulate market vitality,higher education institutions should focus on cultivating students’ financial literacy and carry out relevant financial courses,and households should actively participate in financial market activities and consciously learn Financial knowledge.