Financial Literacy, Portfolio Choice and Financial Well-Being

Zhong Chu (), Zhengwei Wang, Jing Jian Xiao and Weiqiang Zhang
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Zhong Chu: Tsinghua University
Zhengwei Wang: Tsinghua University
Jing Jian Xiao: University of Rhode Island
Weiqiang Zhang: Tsinghua University

Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, 2017, vol. 132, issue 2, No 14, 799-820

Abstract: Abstract This study examined potential effects of financial literacy on household portfolio choice and investment return, an indicator of financial wellbeing. Using data from the 2014 Chinese Survey of Consumer Finance, financial literacy was measured and further categorized into basic financial literacy and advanced financial literacy. This study tested the hypothesis that financial literacy affects household choice between stock and mutual fund. The results indicated that households with higher financial literacy, especially those with higher level of advanced financial literacy tended to delegate at least part of their portfolio to experts and invest in mutual fund. However, households who were overconfident about their financial literacy tended to invest by themselves and were more likely to hold only stocks in their portfolios. The findings also indicated that households with higher financial literacy had a better chance of receiving a positive investment return, suggesting that higher financial literacy may result in a better financial outcome.

Keywords: Household finance; Financial literacy; Overconfidence; Financial well-being (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11205-016-1309-2

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