Household Financialization and Development Resilience: Evidence from China

Development resilience denotes a household’s endogenous ability to sustain welfare in the face of external shocks and to avoid falling into a poverty trap. Using five waves of the China Household Finance Survey, this paper develops measures of household financialization across three dimensions-financial investment, household borrowing, and commercial insurance-and systematically investigates their effects on development resilience together with the underlying transmission channels. Our findings indicate that household financialization significantly enhances development resilience, and this result remains robust across multiple specification tests. The mechanism analysis reveals that financialization strengthens household resilience through three pathways: accumulating human capital, encouraging entrepreneurial activities, and reducing financial vulnerability. Heterogeneity tests reveal that the beneficial effect of financialization varies across household groups. It is more pronounced among households engaged in low-risk financial investments, digital finance, or formal and traditional credit channels, as well as among non-marginally vulnerable households and those owning one or two properties. Further analysis uncovers an inverted U-shaped relationship: moderate financialization is beneficial, while excessive financialization becomes detrimental. These findings offer important academic insights and policy implications for strengthening household resilience and preventing debt-related risks.