Zhang Ji: Household financial risk is a leading indicator of economic development and financial stability—improving household financial security
(Source: "Beijing Daily" 2020-05-18 Page 14)
Chinese household financial asset structure
Family financial risk is an integral part of financial risk and also needs to be prevented and resolved
The "China Financial Stability Report 2019" points out that my country has made a good start in the battle to prevent and resolve major financial risks, but financial risks are taking on new characteristics and gradually being transmitted to households. Household financial risk is a leading indicator of economic development and financial stability. It is also an important part of my country's defense and resolution of major risks, especially financial risks. Families not only need to face homogeneous risks under macroeconomic downward pressure, but also need to deal with idiosyncratic risks such as death, illness, debt, and unreasonable asset allocation. These risks affect household financial security through cash flow gaps and reduced solvency.
Family financial security is not only reflected in the size of the family's risks, but also in the family's ability to cope with risks. For a long time, savings have been the main financial tool for Chinese families to deal with risks, but savings are not enough to deal with all family risks, because Chinese family savings not only need to prevent future uncertain expenditures, such as illness and pension, but also deal with future deterministic expenditures, such as children's education, home purchases, etc. Therefore, more attention should be paid to the family's ability to cope with risk shocks. Even if it suffers a larger risk shock, as long as the family's coping ability is high, the degree of financial vulnerability can be reduced. On the other hand, if households have insufficient capacity to cope with risks, even small risks can have a large impact.
To improve family financial security, we need to stick to the bottom line, highlight key points, strengthen response capabilities, and guide expectations
The 19th National Congress of the Communist Party of China clearly stated that "to protect and improve people's livelihood, we must grasp the most direct and practical interests of the people." Improving household financial security is a specific manifestation of this requirement. It is necessary to stick to the bottom line, highlight key points, strengthen response capabilities, and guide expectations.
We must adhere to the bottom line of security, improve the construction of various social security systems and the connection between systems, and improve the ability of families to cope with risk shocks. Institutionalizing the minimum wage for urban employees, social assistance, social insurance, and critical illness medical care into one management system can not only accurately resolve household financial risks, but also avoid the institutional costs caused by multi-party management and improve the bottom line of household financial security. Increase the scale of social security funds entering the market and increase the rate of return on personal accounts. Adhering to targeted poverty alleviation requires not only increasing the income of poor families and winning the battle against poverty, but also improving the ability of poor families to cope with risk shocks to avoid falling back into poverty.
We must highlight key points and optimize the family income structure. At present, the main sources of household income in my country are wage income, property income, operating income and transfer income, and wage income accounts for an excessively high proportion. This imbalance in the income structure can easily lead to over-reliance on wage income, resulting in a high concentration of household financial risks. Among them, wage income is related to the macro economy, so unswerving economic development is fundamental. According to the survey, when the economic growth rate reaches 6.5%, household financial risks are reduced by 20%, indicating that the economic dividends that households receive from economic growth increase. In particular, household financial security of low-income households increases significantly by 30%. However, we must also note that my country’s family income structure is not reasonable, and families are too dependent on wage income, especially middle- and low-income families. Research shows that differences in income structure have different effects on improving household financial security. Among them, the effect of wage income on improving household financial security is in an inverted U shape. When wage income accounts for 50% of total income, household financial security is the highest. Therefore, diversification of household income can help improve solvency and reduce household financial vulnerability. Under the current slowdown in wage income growth, increasing property income and operating income can effectively improve household financial security. Specifically, the rural land transfer system should be improved and improved so that some farmers can engage in secondary and tertiary industries and obtain wage income and property income after giving up their land management rights, while other farmers can expand the scale of land management and obtain operating income. Continue to improve the business environment, innovate government service models, build political and business platforms, and maintain smooth information. Improve capital market infrastructure construction, strengthen supervision, improve the quality of listed companies, improve trading systems, prevent abnormal fluctuations and resonance in the financial market, and allow household investors to obtain relatively stable capital income from the capital market. Continue to improve the income distribution system and increase transfer income.
It is necessary to strengthen family coping capabilities and reduce family financial risks. Solvency reflects the time that households can use household liquid assets (including savings and financial assets) to maintain their current standard of living when they experience a negative shock. Research shows that the average solvency of Chinese households is three years, among which the factors that have the greatest impact on solvency are medical expenditures and debt expenditures. Therefore, on the one hand, holding more protection-type financial instruments, such as insurance and soundness funds, improves response capabilities, especially accelerating the tax deferral pilot work for protection-type commercial insurance, covering the country as soon as possible, and encouraging households to hold more protection-type commercial insurance products, which will not only improve household financial security, but also help increase growth. Increase the household service consumption tendency, improve the consumption structure, and upgrade household consumption; on the other hand, adhere to the principle that "houses are for living in", maintain the stability of housing prices through differentiated credit policies and the public rental housing system, avoid the loss of family wealth caused by excessive housing price drops, and avoid the financial pressure caused by excessive housing prices.
It is necessary to guide expectations and transform higher risk awareness into more rational asset allocation behavior. When facing high-yield financial products, Chinese households pay too much attention to the rate of return on investment and ignore potential risk losses. They invest too much directly in the stock market and prefer Internet financial products such as P2P. This shows that although Chinese families themselves have high risk awareness, family financial literacy is insufficient. Household financial literacy is an important part of my country's inclusive finance. It is a comprehensive reflection of a family's financial knowledge inventory, risk awareness, risk response and investment behavior. It cannot be measured by simple family education level. Good financial literacy helps families make more reasonable financial decisions, avoid blind participation in the capital market, and improve the efficiency of financial decision-making. Studies have shown that although financial knowledge helps families understand the characteristics of financial products and reduce family financial vulnerability, the effect of holding protective financial instruments (such as commercial insurance) and rich investment experience on reducing family financial risks is far greater than the effect of only financial theoretical knowledge. Therefore, it is necessary to increase the popularization and normalization of household financial literacy and the institutionalization of evaluation mechanisms, and actively guide households to indirectly participate in the capital market to avoid facing greater direct impacts due to insufficient financial literacy. Regularly conduct national or regional censuses and follow-up surveys including household financial literacy, build a high-quality micro household database, provide a more scientific research basis for academic research, and provide an argumentative basis for policy formulation and adjustment.
(Author’s affiliation: National Institute of Opening-up, w88 casino)
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