Alex's China & the World Economy Part A: Housing Sector III. Focusing on a form of long-term saving: Life insurance

Question 1

Which source is this whole section based on?

Answer 1

H. Wang, D. Zhang, Guariglia, A., and G. Fan (2021). ‘Growing out of the Growing Pain’:
Financial Literacy and Life Insurance Demand in China. Pacific Basin Finance Journal, 66,
101459.

Question 2

Introduce the topic & paper for ‘Life insurance demand in China’

Answer 2

China is the 3rd largest life insurance market globally (Munich Re, 2018), but penetration is low.
Only 114 million Chinese people hold life insurance out of 1.4 billion.
Premiums per capita rose from 70 RMB (1999) to 1952 RMB (2018).
Market described as having “growing pains” (Economist, 2011).
Key issue: low financial literacy → disbelief in insurance products.
Only 33.9% of surveyed households trust insurance.

Question 3

How does financial literacy influence life insurance demand in China?

Answer 3

What is financial literacy?
Definition 1: “The ability to use knowledge and skills to manage financial resources effectively
for a lifetime of financial well-being”.
Definition 2: “A combination of awareness, knowledge, skill, attitude and behaviour that are
necessary to make sound financial decisions and ultimately to achieve financial wellbeing”
Financial literacy reduces information asymmetry and increases market participation.
Measured via:
Attention to financial info (Atten.)
Correct answers to finance questions (Grade)
Whether respondent took finance/econ classes (Class)
CHFS and CFPS datasets used.
Financial literacy is positively associated with:
Probability of owning life insurance
Amount of premium paid

Question 4

Measuring financial literacy

Answer 4

CHFS:
Atten., Grade, Class
Composite index via factor analysis
CFPS:
Basic & advanced financial knowledge (scores and indices)
Financial behavior (e.g. budgeting, saving, bill payment)
Financial attitude (e.g. views on spending vs. saving)
Scores range:
Behavior: 0–9
Attitude: 3–15 (reverse-coded)

Question 5

Empirical results on financial literacy and insurance

Answer 5

CHFS:
Probit MEs: 1.9 pp (Atten.) to 4.7 pp (Class)
Tobit MEs: 15.8 pp (Atten.) to 33.3 pp (Class)
CFPS:
Probit MEs: 0.5 pp (Attitude) to 2.9 pp (Basic FK)
Tobit MEs: 3.8 pp to 20.8 pp
Financial literacy has a stronger effect than education.
Basic financial knowledge has the largest impact; attitude the smallest.

Question 6

Robustness of financial literacy findings

Answer 6

Robustness Test 1:
Linear Probability Models and IV models (instruments: parental education, provincial FL)
Robustness Test 2:
Focused only on narrow life insurance (excluding bundled health/accident)
Robustness Test 3:
Used factor analysis indices instead of raw scores
Findings remain consistent across all tests.

Question 7

Policy implications for life insurance in China

Answer 7

Improving financial literacy can:
Reduce disbelief in insurance
Increase participation and premium payments
Policy recommendation:
Government and insurers should invest in public financial education
Better understanding → higher demand → market growth
Goal: Help China’s insurance market “grow out of the growing pain”