How Does Financial Literacy Influence the Efficiency of Household Portfolios? Evidence from Chinese Households

Based on the China Household Finance Survey (2013–2019), we investigate the relationship between financial literacy and household financial portfolio efficiency (HFPE). We find that households with higher levels of financial literacy allocate assets more efficiently. We also reveal two key pathways through which financial literacy enhances HFPE: the mitigation of information asymmetry and the enhancement of households’ risk attitude and capabilities. The information asymmetry channel is operationalized using three dimensions—attention to economic news, attendence economics or finance training programs, and the use of digital skills, while households’ risk attitudes and capabilities is captured by risk awareness, risk tolerance, and risk management capacity. Further analysis also demonstrates that the impact of financial literacy varies significantly across different household characteristics and regions.