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| Consumer Credit and Household Human Capital Investment |
| SONG Hong, ZHANG Qing, LU Yi
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School of Economics, Fudan University;
School of Economics and Management, Tsinghua University |
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Abstract The growing use of credit cards increases consumer credit accessibility, alleviates liquidity constrains, facilitates smooth consumption, and increases total consumption. Previous studies investigate the effects of credit cards on consumption, savings, and financial market investments; however, few studies explore the effects on human capital investments. Meanwhile, given slowing economic growth and aging population in China, the government is facing budgetary pressure to increase education finance. Household human capital investments can increase human capital accumulation and promote high-quality economic development. Thus, this study investigates whether and how credit card usage affects household human capital investments.
We use panel data from the 2011-2017 China Household Finance Survey. These nationally representative survey data provide information on households' financial and nonfinancial assets, liabilities, income, consumption, investments, and demographic characteristics. Our study proceeds in several steps and produces various findings.
First, we find that credit card usage has significantly positive effects on household human capital investments. To deal with the potential concern of endogeneity, we control for the time trend of the baseline difference between households with and without credit cards into the specification. In addition, we exploit the proportion of households using credit cards in the same community as the instrumental variable. We also conduct a battery of robustness checks for alternative outcome variables, dimensional effect exclusion, different samples, propensity score matching, additional controls, and outlier exclusion. The results of all of these tests are consistent and robust.
Second, we examine and establish several possible channels through which credit card usage affects household human capital investments. First, credit card usage may increase household consumption and investments, including human capital investments. Second, it may promote increased consumption and optimize the consumption structure. In other words, credit card usage can increase human capital investments for the purpose of individual development. Third, credit card usage may ease household budget constraints and optimize intertemporal asset allocation, thereby increasing human capital investments.
Third, we conduct further investigation and find that credit card usage has persistent, long-term promotion effects on human capital investments. We also find that households increase their labor supply and other liabilities to ensure greater cash flow to deal with repayment pressure in the future, which raises concerns regarding potential financial risks. Heterogeneity analysis indicates that the effects of credit card usage on human capital are more pronounced among urban households and those with high income and high education levels, which may widen the gap in human capital accumulation among households.
Our findings have a number of policy implications. In terms of the effects of COVID-19 and the recent substantial slashes in taxes and fees, China is facing government pressure and a slowdown in its economic growth. Our findings provide new insights into human capital dividend accumulation and show that it is a new driver for economic growth. For example, digital consumer credit can be combined with student loans to encourage households to invest more in human capital. Supervision laws and regulations and risk control systems should be improved to reduce financial risks. Thus, consumer credit can facilitate the development of the real economy, expand domestic demand and promote high-quality economic development.
The study contributes to the extensive body of literature on the effects of consumer credit. Previous studies mainly focus on the impacts of consumer credit on household consumption and savings. Our findings expand the literature by providing new evidence from the perspective of household human capital investments. Moreover, our findings provide new insights into how to effectively increase human capital accumulation.
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Received: 11 January 2021
Published: 16 February 2023
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