Online Wealth Management, Wealth Effect, and Consumption: Evidence from the Internet Platform Users' Wealth Management Behavior
YANG Yaxin, SONG Ke, ZHANG Jinfan
International Monetary Institute, Renmin University of China; Institute of Real Estate and Urban Studies, National University of Singapore; School of Finance, Renmin University of China; FinTech Institute, China Financial Policy Research Center, Renmin University of China; School of Management and Economics, The Chinese University of Hong Kong, Shenzhen
Summary:
Against the backdrop of a sluggish global economy and pervasive uncertainties, understanding the micro-decision-making mechanism of residents' consumption is critical to unleash consumption potential, promote consumption upgrades, stimulate domestic demand, and foster high-quality economic development. Financial investment serves as a pivotal tool for consumers to smooth consumption throughout their lives. Premised on financial market frictions, investment income from financial assets emerges as a significant source of property income, demonstrating a greater marginal propensity to consume compared with wage and household business incomes, thereby inducing a wealth effect. With the popularization of mobile Internet and the rapid development of digital finance, residents increasingly engage with online wealth management products via Fintech platforms, facilitating their participation in financial markets and accumulation of property income. Based on the classical wealth effect theory, this study randomly selects the financial behavior and consumption behavior data of about 30,000 active users from a unicorn-level Fintech platform in China—Alipay—and analyzes the impact of online wealth management on residents' consumption expenditure and consumption structure. The main conclusions are as follows. (1) Online wealth management investment income significantly promotes residents' consumption, especially e-commerce consumption. This may be by allowing consumers to quickly switch between wealth management and e-commerce apps through smartphones, and through shortening the time lag of the conversion of online wealth management investment income into consumption. After resolving the potential endogeneity problem using the DML model and by using consumption expenditure growth rate as the explained variable, the empirical results still show that online wealth management investment income significantly promotes household consumption, especially e-commerce consumption. (2) As the sample comes from a Fintech platform and does not represent participants in the wider economy and society, to verify the robustness and reliability of the benchmark results we further use data from the China Household Financial Survey 2019 (CHFS-2019) for cross-validation. The empirical results still verify that online wealth management investment income significantly promotes household consumption expenditure, especially e-commerce consumption, indicating that the wealth effect of online wealth management is robust. Furthermore, the results of intermediary mechanism analysis show that online wealth management investment income promotes residents' consumption by optimizing the income structure. (3) Focusing on the extent of the wealth effect among the sinking population, when the explained variable is consumption expenditure, the coefficient of the interaction between online wealth management investment income and the degree of sinking changes from negative to positive as the degree of sinking increases, but the change is not significant. Therefore, the wealth effect of online wealth management does not have a significant sinking effect. (4) To further promote high-quality development, it is necessary not only to effectively improve residents' consumption expenditure but also to upgrade their consumption structure. Based on this, we further study the impact of online wealth management investment income on the upgrading of residents' consumption structure from a structural perspective. The results show that online wealth management investment income has a significant promoting effect on residents' expenditure on various goods on e-commerce platforms, and it has a particularly significant positive impact on the proportion of development and leisure consumption, which helps to promote the upgrading of residents' consumption structure. Compared with previous studies, the possible marginal contributions of this article are as follows. (1) Based on micro-data, namely individuals' monthly online wealth management and consumption behavior on a unicorn-level Fintech platform, the study verifies the wealth effect of online wealth management and further explores the heterogeneity of this effect among sinking groups such as rural residents, people in western regions, and residents in third-tier cities. (2) The study expands the research perspective on the wealth effect of online wealth management from that of consumption expenditure to that of consumption structure, and explores the heterogeneous impact of online wealth management investment income on basic, development, and leisure consumption, providing useful empirical evidence to further standardize the development of online wealth management in its current development stage and promote the upgrading of residents' consumption. (3) The study uses CHFS-2019 data to conduct cross-validation on the wealth effect of online wealth management, and further reveals the mechanism by which online wealth management promotes consumption, i.e., by optimizing residents' income structure.
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