Risk attitude, financial literacy and household consumption: Evidence from stock market crash in China

The most recent stock market crash occurred in 2015 and caused a huge negative impact on the household sector. This paper assesses the impact of stock market crash on households' financial income and consumption. We find that the financial income of households holding risky assets decreased significantly, in the meanwhile, financial literacy and investment experience did not help reduce loses. In terms of consumption, households with different risk attitude and financial literacy have significant differences in whether they choose smoother consumption decisions after the shock. Finally, based on the empirical results, we estimate that the stock market crash caused the consumption of residents in 2016 to decrease by 87.53 billion RMB, accounting for 0.30% of the total resident consumption.

Automated summary

This study assesses the impact of the 2015 stock market crash on household finances, finding that households holding risky assets experienced significant decreases in financial income, with financial literacy and investment experience not helping to reduce losses. In terms of consumption, households with different risk attitudes and financial literacy displayed significant differences in their post-crash consumption decisions. The study estimates that the crash caused residents' consumption in 2016 to decrease by 87.53 billion RMB, accounting for 0.30% of total resident consumption.