Does the Financial Literacy of Householders Affect Household Credit Constraints?——Evidence from China

Abstract

Financial literacy is gaining increasing importance as a policy objective in many countries. A growing literature has examined the role of financial literacy in household financial behavior. However, there is a little literature on analyzing household credit constraints from the perspective of financial literacy. This paper analyzes the impact of householders’ financial literacy on household credit constraints by using data from the 2017 China Household Finance Survey (CHFS2017) and using Probit regression analysis method. We find that higher financial literacy is significantly related to mitigation of the credit constraints.The main conclusion is that the householders’ financial literacy has a significant impact on household credit constraints. Households with higher levels of financial literacy are more likely to alleviate credit constraints.Therefore, improvements in financial literacy could mitigate the credit constraints, and thereby promote financial inclusion.