The impact of financial inclusion on human capital investment: Evidence from China Family Panel Studies

Abstract

This paper explores the influence of financial inclusion on human capital investment among Chinese households. Although prior research underscores that financial inclusion fosters economic growth, its direct impact on household-level human capital investment remains insufficiently explored, particularly in developing regions. This research utilizes data from the China Family Panel Studies (CFPS) to develop a comprehensive household-level financial inclusion index, including bank accounts, loans, insurance, and digital payments. A two-way fixed effects model is employed to assess both the impact and underlying mechanisms through which financial inclusion affects human capital investment. The findings indicate that financial inclusion enhances human capital investment among Chinese households, with stronger effects observed in the western regions and among low-income families. This impact is realized by alleviating financing constraints, boosting property income, and mitigating income uncertainty. The results highlight the critical importance of actively promoting financial inclusion in developing countries, with particular emphasis on reaching underdeveloped regions and low-income households.