Digital financial inclusion and household financial vulnerability: An empirical analysis of rural and urban disparities in China

Abstract

In recent times, a notable increase in the leverage ratios among numerous households across China has been witnessed, culminating in heightened household financial vulnerability. Concurrently, the sphere of digital inclusive finance has witnessed rapid advancement, establishing itself as a crucial mechanism for Chinese households to counteract financial risk shocks. This research article meticulously constructs an ordered regression model, anchored in micro-level data from household surveys, to delve into the influence and operative mechanisms of digital inclusive finance on the vulnerability of household finances. Empirical findings from this study robustly indicate that the evolution of digital inclusive finance significantly mitigates the household financial vulnerability. A thorough mechanism analysis reveals that digital inclusive finance primarily curtails household financial vulnerability through several avenues: it notably enhances financial literacy, augments the income derived from household financial assets, and elevates contributions to commercial insurance. Intriguingly, a heterogeneity analysis underscores that the impact of digital inclusive finance is more pronounced in reducing financial vulnerability amongst households registered in rural areas and those with lower income levels. This article contributes to the expansion of the theoretical framework concerning household financial vulnerability, offering insightful guidance and policy implications for addressing financial vulnerability concerns and forestalling macro-financial risks.