Impacts of Financial Literacy on Loan Demand


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Author: Angela C. Lyons, John E. Grable and Ting Zeng

Abstracts: Government leaders around the world are designing national strategies to improve financial inclusion for populations traditionally excluded from the financial markets. Financial literacy is a key tool being used to bring economically vulnerable populations into the financial mainstream. We use data from the 2013 Chinese Household Finance Survey (CHFS) to investigate the impacts of various dimensions of financial literacy on the demand for bank and non-bank loans among rural, illiterate, and migrant populations in China. The findings show that those most vulnerable groups may be less likely to benefit from financial literacy, especially when it comes to usage of formal bank loans. Moreover, other factors such as those related to social networks and infrastructure may matter more than financial literacy. The findings suggest that barriers to access likely need to be overcome before financial literacy can be truly effective. Interestingly, results varied across measures of financial literacy and financial inclusion. Researchers are encouraged to re-examine previous definitions and measures of financial literacy and inclusion and to develop a better understanding of the relationship between the two dimensions. The current study provides important insights for policy makers and international organizations designing national strategies to improve financial inclusion via financial literacy, especially for populations that have been traditionally excluded.