Impacts of Financial Literacy on Household Consumption Inequality: Panel Data from Chinese Households

Consumption inequality can reflect the real welfare differences among residents, and alleviating consumption inequality plays an important role in improving residents’ welfare level. Based on the 2017 and 2019 panel data from the China Household Finance Survey (CHFS), this study measures consumption inequality at the household level and examines the impact of financial literacy on consumption inequality. The intermediary effect model was used to investigate the internal mechanism of the influence of financial literacy on consumption inequality from three aspects: liquidity constraint, household asset allocation and income inequality. While quantile regression was used to compare the difference of the influence of financial literacy on household consumptions with different consumption levels. Results show that improving family financial literacy is conducive to alleviating household consumption inequality. In particular, it has a higher degree of alleviating enjoyment consumption inequality compared with household total consumption inequality and subsistence consumption inequality. Furthermore, financial literacy can mitigate consumption inequality by easing household liquidity constraints, optimizing asset allocation, and alleviating income inequality channels. Besides, financial literacy has a stronger effect on the household consumptions with high consumption levels. This study provides valuable enlightenment for improving family financial literacy, alleviating consumption inequality and smoothing the domestic economic cycle.