Financial Knowledge, Capability to Guard Against Risks, and Rural Households' Selection of Financial Assets: An Empirical Study Based on Rural Households in China

Based on rural household data collected in two rounds of the China Household Finance Survey(CHFS) in 2015 and 2017, respectively, this paper presents the likely impact of financial literacy and capability against risks on the breadth and depth of participation by rural households in risky financial markets. After instrumental variables are used to solve endogenous problems, we find that a good command of financial knowledge and a higher risk management level could significantly increase the probability and proportion of rural households investing in risky financial assets. A mechanism analysis further reveals that financial knowledge motivates rural households to engage in financial investments by helping them evaluate their capability to guard against risks. After multiple dimensions of indicators are employed to measure financial knowledge, the estimated results remain stable. In view of this, we have put forward some policy suggestions to increase the property income of rural households and promote the rural financial market.