Financial literacy, liquidity constraits and household risk asset allocation

Abstract

This paper empirically analyzes the relationship between financial literacy, liquidity constraints and household risky asset allocation using survey data from the China Household Finance Survey (CHFS) for 2017, 2019 and 2021. The study finds that improved financial literacy significantly increases households' demand for risky assets; improved financial literacy eases household liquidity constraints, weakening the impact of liquidity constraints on household risky assets; and improved household financial literacy mitigates constraints on household liquidity, leading to greater demand for risky assets.