Abstract
Based on data from the 2014 China Family Panel Studies (CFPS), this paper investigates the effects of financial literacy on Chinese households' portfolio choices and investment returns from the financial market. We find that financial literacy significantly increases households' investments in risky assets. Financial literacy may have an impact by increasing capacities to understand and compare financial assets. However, we further find that it is not necessary for all investors to have financial knowledge to gain higher investment returns from financial markets. Our results show that financial literacy increases investment returns for younger and better educated households while reducing the returns for older, less educated households.
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