How does financial literacy affect households’ financial fragility? The role of insurance awareness

Chuna Chen, Zhuomin Tan and Song Liu

International Review of Economics & Finance, 2024, vol. 95, issue C

Abstract: This paper investigates the impact of household heads' financial literacy on households' financial fragility. We estimate a panel probit model by employing panel data from four waves (2015, 2017, 2019, and 2021) of the China Household Finance Survey (CHFS) with 58,802 observations. We focus on the mediating role of insurance awareness. First, enhanced financial literacy significantly mitigates households’ financial fragility, with insurance participation emerging as a crucial mechanism. Second, our cross-sectional analyses show that the beneficial effects of financial literacy are more pronounced in households not constrained by wealth or cognitive skills, as well as households with lower health risks and those located in the central and western regions of China. Third, we identify that financial literacy, through its distinctive financial knowledge attributes, offers unique contributions to reducing household financial fragility, separate from general cognitive abilities. Last, we highlight peer effects in the influence of financial literacy on financial fragility, predominantly driven by social norms.

Keywords: Household financial fragility; Financial literacy; Insurance awareness; Insurance participation (search for similar items in EconPapers)
JEL-codes: D12 D91 G51 G53 O53 (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)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056024005100
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:95:y:2024:i:c:s1059056024005100

DOI: 10.1016/j.iref.2024.103518

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().