FinTech and consumption resilience to uncertainty shocks: Evidence from digital wealth management in China

Developing countries are taking advantage of FinTech tools to provide more people with convenient access to financial market investment through digital wealth management. Using COVID-19 as an uncertainty shock, we examine whether and how digital wealth management affects the resilience of consumption to shocks based on a unique micro dataset provided by Alipay, a leading Big Tech platform in China. We find that digital wealth management mitigates the response of consumption to uncertainty shocks: residents who participate in digital wealth management, especially in risky asset investments, experience a lower reduction in consumption. The mitigation effect works through two channels: those who allocate a larger proportion of risky assets in their portfolio (portfolio choice channel) and obtain a higher realized return (changes in asset prices channel) exhibit greater consumption resilience to negative shocks. Importantly, digital wealth management helps improve financial inclusion, with a more pronounced mitigation effect among residents with lower-level wealth, living in less developed areas, and those with lower-level conventional finance accessibility. We also find that digital wealth management substitutes for conventional bank credit but serves as a complement to FinTech credit in smoothing consumption during uncertainty shocks.