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Who should the elderly borrow money from under formal financial exclusion? Evidence from China

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  • Liu, Yulin
  • Li, Hebo
  • Fang, Xin

Abstract

In China's typical dual financial structure, widespread financial exclusion severely affects the availability of formal credit to special groups, such as poor and elderly individuals. Using a sample of households from the China Family Panel Studies (CFPS) between 2010 and 2018, this research identifies the life-cycle characteristics of borrowing decisions of Chinese households based on the age-period-cohort (APC) model. The results show that the informal borrowing participation of Chinese households exhibits a distinct U-shaped life-cycle pattern, while formal borrowing exhibits an inverted U-shaped pattern. The demand for informal borrowing among elderly households excluded from the formal financial market increases with age, which is not consistent with the conservative and frugal consumption preferences of elderly individuals. Our research reveals that endogenous perturbations of health risks and exogenous shocks from major events, such as weddings and funerals, are homogeneous drivers of increased informal borrowing demand among rural and urban elderly households, but the impact is greater for rural than urban households. Further analysis indicates that the choice of financing from informal channels when risk and shocks occur is not a subjective preference of elderly households but a passive choice under financial exclusion. Thus, alleviating formal credit constraints may play a major role in improving household well-being.

Suggested Citation

  • Liu, Yulin & Li, Hebo & Fang, Xin, 2024. "Who should the elderly borrow money from under formal financial exclusion? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 964-982.
    • Handle: RePEc:eee:ecanpo:v:81:y:2024:i:c:p:964-982
    DOI: 10.1016/j.eap.2024.01.012
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    More about this item

    Keywords

    Financial exclusion; Informal borrowing; Household life cycle; Health risks; Major events;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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