Transformations  in
Business & Economics

FINANCIAL LITERACY AND HOUSEHOLD INVESTMENT PERFORMANCE: EVIDENCE FROM CHINA
Sheng Xu, Zhitao Xiong, Lin Jiao

ABSTRACT. Financial innovations centred on science and technology bring diversified financial products, which are beneficial to meet the diversified demands of household asset allocation. However, household investment performance is not improved, which may be due to the lack of household financial literacy. To explore the effects and action mechanisms of financial literacy on household investment performance, a theoretical model of household investment decision-making was constructed. Theoretical hypotheses were verified by experiments using the data of the China Household Finance Survey in 2013. Results demonstrate that household financial literacy has positive impacts on household investment performance and improving financial literacy is conducive to enhance such performance. A good household financial literacy can increase the possibility of households to participate in stock, fund, and bond markets. However, improving financial literacy cannot increase household participation in the real estate market considering that such market possesses dual attributes of investments and residences. The conclusions provide theoretical references for government sectors to set up a long-term mechanism for household financial literacy education and for the supervision of financial institutions to increase social responsibility.

KEYWORDS:  financial literacy, investment performance, household finance.

JEL classification:  D12, G11, D15.