Can financial education improve consumer welfare in investment markets? Evidence from China

Under the current complex economic situation and the impact of COVID-19, China's capital market reform has entered a critical period, with opportunities and challenges coexisting. One of the important challenges is how to improve the well-being of investors in capital markets. Financial education, which has been offered by financial institutions in many countries in recent years, is likely to become an effective policy instrument to meet this challenge. Using survey data of individual investors from China, this study examines the potential impact of financial education programs offered by financial institutions on individuals' investment diversification. The results show financial education is positively associated with the investment diversification of individual investors. An analysis of the underlying mechanism shows that financial education contributes to the improvement of investment diversification by mitigating limited attention bias, strengthening social trust, and promoting the use of professional investment advisors. These findings suggest that the persistent promotion of financial education programs has a positive effect on optimizing financial asset allocation decisions and improving financial welfare of Chinese households.