Can Financial Intermediary Development Improve Financial Literacy? Evidence from China

25 Pages Posted: 1 Aug 2019 Last revised: 3 Aug 2019

See all articles by Jia Xu

Jia Xu

University of International Business and Economics (UIBE)

Qin Su

University of International Business and Economics

Xiaoyun Zhang

Dongbei University of Finance and Economics

Date Written: December 29, 2018

Abstract

The lack of financial knowledge and its serious consequences has brought about extensive discussion among academics since the 2008 financial crisis. This study investigates the importance of financial intermediation in financial literacy. Using Consumer Finance and Investment Education Survey data in 24 cities from 2010 to 2012 in China, we find that financial intermediary development helps to improve financial literacy. This positive impact is magnified in central and western China, and to females and to less-educated consumers. The results hold after controlling the problem of endogeneity by constructing regulation of bank cross-city branching as an instrumental variable. We further run a number of estimations to discover the influence mechanism. Our results show that the influence upon individuals occurs not after but before they make financial decisions, and that the precondition is when their current expenditure exceeds current revenues, which requires inter-temporary cash-flow adjustments. That is to say, only when individuals have formed an effective demand for financial knowledge, will financial intermediary development improve their financial literacy. The study sheds some light on the improvement of consumer financial literacy and financial inclusion.

Keywords: financial intermediation; financial literacy; commercial bank; financial inclusion; inter-temporary decision

JEL Classification: G21; D14; D91; O15

Suggested Citation

Xu, Jia and Su, Qin and Zhang, Xiaoyun, Can Financial Intermediary Development Improve Financial Literacy? Evidence from China (December 29, 2018). Available at SSRN: https://ssrn.com/abstract=3428138 or http://dx.doi.org/10.2139/ssrn.3428138

Jia Xu (Contact Author)

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Qin Su

University of International Business and Economics ( email )

10 Huixindongjie, Chaoyang District
Beijing, 100029
China

Xiaoyun Zhang

Dongbei University of Finance and Economics ( email )

China

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