Who should the elderly borrow money from under formal financial exclusion? Evidence from China

Yulin Liu, Hebo Li and Xin Fang

Economic Analysis and Policy, 2024, vol. 81, issue C, 964-982

Abstract: In China's typical dual financial structure, widespread financial exclusion severely affects the availability of formal credit to special groups, such as poor and elderly individuals. Using a sample of households from the China Family Panel Studies (CFPS) between 2010 and 2018, this research identifies the life-cycle characteristics of borrowing decisions of Chinese households based on the age-period-cohort (APC) model. The results show that the informal borrowing participation of Chinese households exhibits a distinct U-shaped life-cycle pattern, while formal borrowing exhibits an inverted U-shaped pattern. The demand for informal borrowing among elderly households excluded from the formal financial market increases with age, which is not consistent with the conservative and frugal consumption preferences of elderly individuals. Our research reveals that endogenous perturbations of health risks and exogenous shocks from major events, such as weddings and funerals, are homogeneous drivers of increased informal borrowing demand among rural and urban elderly households, but the impact is greater for rural than urban households. Further analysis indicates that the choice of financing from informal channels when risk and shocks occur is not a subjective preference of elderly households but a passive choice under financial exclusion. Thus, alleviating formal credit constraints may play a major role in improving household well-being.

Keywords: Financial exclusion; Informal borrowing; Household life cycle; Health risks; Major events (search for similar items in EconPapers)
JEL-codes: O16 O17 Q14 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:81:y:2024:i:c:p:964-982

DOI: 10.1016/j.eap.2024.01.012

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