Can digital financial inclusion mitigate household financial vulnerability? Evidence from China

Abstract

This study examines the underexplored relationship between digital financial inclusion (DFI) and household financial vulnerability (HFV) in emerging markets, with a focus on China. Utilizing three-wave China Household Finance Survey (CHFS) data and China’s Digital Financial Inclusion Index, the findings demonstrate that DFI significantly mitigates HFV. The breadth of coverage, the degree of digitalization and the depth of usage can all produce mitigation effects. Mechanism tests reveal that DFI mitigates HFV by reducing financial exclusion and increasing household income, and financial literacy strengthens the mitigation effect of DFI on HFV. Heterogeneity analysis further demonstrates that DFI has a more pronounced mitigating effect among vulnerable groups, including rural households, low-income households, less educated households, and those without property ownership. Overall, these findings provide robust empirical evidence for policymakers to promote DFI as an effective strategy for reducing HFV and enhancing financial stability in emerging markets.