Impact of Financial Literacy on Retirement Financial Portfolio: Evidence from China*

Abstract

Financial literacy is an important factor that affects financial assets saved for retirement. Based on the China Household Finance Survey (2017) data and the two‐stage life cycle model, we study the impact of financial literacy on retirement financial portfolios. The findings are as follows: (i) financial literacy has a significant positive impact on the choice of wealth management products, risky financial assets and the total amount of retirement financial assets, but it has a negative impact on the choice of bank savings; (ii) financial literacy has a significant negative impact on the proportion of savings but has a significant positive impact on the proportion of wealth management products and risky financial assets; and (iii) using a different financial literacy index, considering selection bias and the influence of financial practitioners in the household, we prove the reliability of the above results. The paper highlights the importance of financial education and provides strong support for public (government) involvement to strengthen financial literacy education and improve the awareness of retirement financial planning to reduce the financial pressures faced by many of China's elderly citizenry.

Farmers' awareness of digital credit: Does financial literacy matter?

“…Disney & Gathergood, 2013;Lusardi & de Bassa Scheresberg, 2013;Lusardi & Tufano, 2015;Stango & Zinman, 2009). Conversely, it is suggested that individuals with high financial literacy are more able to save and plan for their retirement (Sun et al, 2021;Yeh, 2022), are more likely to use financial services (Disney & Gathergood, 2013;Grohmann et al, 2018;Hasan et al, 2021) and are less likely to invest in highly risky financial products (Gui et al, 2021).…”

“…Liu et al, 2023; Maji & Laha, 2022; Sayinzoga et al, 2016). These studies, both in developed and developing countries, generally concentrated on the effect of individuals' financial literacy on debt behaviour (Lusardi & Tufano, 2015), retirement planning (Clark et al, 2017; Sun et al, 2021), household savings (Adetunji & David‐West, 2019; Beckmann, 2013), poverty reduction (Wang et al, 2022) and financial inclusion (Hasan et al, 2021; Koomson et al, 2020; Ozili, 2021). The striking evidence from these studies generally suggests that most individuals lack an understanding of basic financial concepts needed to make prudent financial decisions.…”

Research on influences of education and financial literacy on commercial insurance purchase in China

“…Through education, individuals receive training and gradually develop financial literacy (Zhang and Xiong, 2020). Financial literacy and education were crucial factors impacting financial decision-making or household financial behavior, including financial market participation, portfolio choice, investor diversification, savings behavior, fraud detection and so on (Munir et al, 2020;Sun et al, 2021;Fisch and Seligman, 2022;Abreu and Mendes, 2010;Morgan and Long, 2020;Engels Commercial insurance purchase in China et al, 2020), which results in a better financial outcome (Chu et al, 2017) and which might, in turn, determine the purchase of insurance. Existing literature proved that financial literacy and education have a significant and positive impact on commercial insurance purchases (Niu et al, 2020;Li et al, 2021b).…”

International Scientific Conference ERAZ - Knowledge Based Sustainable Development

“…On the other hand, it has a negative impact on the choice of bank savings. Another negative impact of financial literacy is on the proportion of savings but Sun et al (2021) found also a significant positive impact on the proportion of wealth management products and risky financial assets. In the context of risk perception, research by Riepe et al (2022) identified a lower risk aversion for entrepreneurs with lower financial literacy.…”

“…According to the findings of Sun et al (2021) financial literacy has a significant positive impact on the choice of wealth management products, risky financial assets and the total amount of retirement financial assets. On the other hand, it has a negative impact on the choice of bank savings.…”