Financial Literacy and Household Borrowing Behavior
SONG Quanyun, WU Yu, YIN Zhichao
School of Finance, Southwestern University of Finance and Economics,SWUFE; Survey and Research Center for China Household Finance, SWUFE; School of Finance, Capital University of Economics and Business
Abstract:
This paper explores the impact of financial literacy on households’ formal credit demand and credit behavior by using China Household Finance Survey data in 2015. Summary statistics show that credit constraint is not only prevalent in rural China, but also in urban area. Empirical analyses indicate that financial literacy has a significant positive effect on households’ formal credit demand and their probability to apply for formal credit. Households with better financial literacy also have higher formal credit availability and also obtain more formal credit. Therefore, government should disseminate financial knowledge further to help rectify cognitive bias and steering the better use of financial services.
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