This study estimates Chinese individuals’ financial capability and analyzes the association between financial capability and household investment management. By applying a novel hybrid item response theory to data from the China Family Panel Studies, this study finds that more than 70% of Chinese individuals have financial capability around the average level, and less than 12% of individuals have financial capability far below the average. For two of the components of financial capability, desirable behaviors and perceived financial knowledge, however, more than half of Chinese individuals are below the average. The primary finding on whether financial capability predicts investment management is that individuals with higher financial capability are more likely to take control of household investment alone than to share investment decisions with spouses.
Chiang, T.- F.: Financial Capability and Investment Management of Chinese Households: An Application of Hybrid Item Response Theory, in: Journal of Consumer Affairs (forthcoming)