14. Financial Literacy and Consumer Debt: An Empirical Analysis Based on the CHFS Data

Against the backdrop of the rapidly expanding household debt in China, we have conducted this empirical analysis of the relationship between financial literacy and consumer debt. This paper focuses on the purpose of household borrowing, based on the data from Chinese Household Finance Survey (CHFS) data, and examines how exactly financial literacy affects actual household and consumer debt. This paper shows how financial literacy affects actual household debt accumulation and distribution. The main findings of the paper are as follows: (1) higher financial literacy is linked to household debt, but lower financial literacy correlates with excessive debt, which suggests that financial literacy helps households to rationally manage their assets, thereby effectively controlling household debt risk and reducing the risk of excessive debt. (2) Financial literacy has a strong positive impact on consumer debt, which has serious implications for the rapidly expanding household consumer finance market. Our study means that high level of financial literacy can push up consumer debt and in the process contribute to the expansion of the consumption market. Therefore, improving financial literacy can promote healthy borrowing behavior and reduce the risks associated with consumer finance and financial markets as a whole.