Financial Resilience in China: Conceptual Framework, Risk and Protective Factors, and Empirical Evidence

Abstract

As economic downturns and social uncertainties arise domestically and globally, the capability to cope with financial emergencies and adversities, known as financial resilience, becomes increasingly crucial. It needs particular attention when those developmental risks impact individuals and families at the micro level. However, existing studies mainly explored financial resilience at a macro level, using simple indicators, and in developed countries. These prevent us from understanding and improving people’s financial well-being and its predictors both theoretically and practically. This study aims to fill these research gaps in conceptualization, measurement, and context for the first time. It builds upon relevant theories on resilience, financial well-being, intersectionality, and China’s context to develop and examine a financial resilience conceptual framework. The framework comprises four components: current asset, financial access, financial literacy, and social capital. It also includes four levels ranging from financially vulnerable to low, moderate, and high financially resilient. Using data from the China Family Panel Studies, this study provided an overview of family financial resilience in mainland China. One-fifth of the sampled 3710 families were financially vulnerable or low resilient. Fifteen demographic and socioeconomic determinants, except for region and sex, were significantly associated with financial resilience. The study further identified four combined scenarios featuring benchmarks, cumulative risk factors, and protective factors. These findings have implications for targeted policies and services on financial resilience enhancement, poverty alleviation, and sustainable development in countries with developmental risks. It inspires new perspectives for finance and family studies and suggests specific directions for financial well-being research.

Appendices

Appendix 1: Survey Questions and Justifications of the Financial Resilience Framework

	Survey questions	Justifications
Current asset
Savings	“What is the total family savings including cash and deposit?” “What is the total family income in the last 12 months?”	There are two pre-processed variables in the database, “savings” and “finc”. We obtained the income per month to see the ratio between savings and income (Salignac et al., 2019). Categories of the ratio were divided based on the study by Salignac et al. (2022)
Debt management	“Excluding mortgage loan, what is the total amount of your family’s unpaid off bank loan?”	We computed the debt-to-income ratio based on the study by Salignac et al. (2022). Categories of the ratio were divided based on the sample distribution, i.e., 0 codes 4, (0,1) codes 3, [1, 3) codes 2, 3 and above codes 1
Raise emergency funds	“If your family has to raise a total amount of 20,000 yuan in case of some emergency. How difficult will it be to raise the money?”
Met living expenses	“Expense” is a pre-processed variable in the database, we computed the expense-to-income ratio based on the implications by Salignac et al. (2022). Categories of the ratio were divided based on the sample distribution, i.e. [0, 0.5) codes 4, [0.5,1) codes 3, [1, 2) codes 2, 2 and above codes 1
Income quartile	“fincome1_per_p” is a pre-processed variable in the database, which has 4 ascending categories
Financial access
Access to bank accounts	“What is the total amount of the certificate of deposits currently held by your family?”	Based on the answer to this question and the amount of household total deposit, we can define whether this household has a bank account or not and how active use of their account
Access to credits	“When your family needs to borrow a large amount of money (e.g. purchasing a house, operation turnover), from whom you can borrow money first?	These two questions provide multiple choices covering relatives, friends, bank credit or loans, formal credit institutions other than banks, stranger lenders, fringe lending, etc., which match with the credit item in Salignac et al.’s framework mostly. This situation also reflects the emerging credit card market and special emphasis on credit debt in China and is similar to those in Indonesia (Fungacova & Weill, 2015; Wang et al., 2011; Xiao et al., 2021). For the unmet demand, if respondents were rejected by more lenders, their unmet situation may be severer
Unmet credit demand	“Has your family been rejected to borrow a relatively large amount of money by the following lenders?”
Access to insurances	“In the past 12 months, how much was the total expenditure on commercial insurance?” “In the past 12 months, what was the total amount of retirement insurance that all of your family members have received?”	From the direct answers to these two questions, we can infer whether respondents have access to various forms of insurance and the degree of active use of this financial product and service. Based on the sample distribution, we consider 50,000 as a cutoff point for basic insurance users and significant insurance users
Financial literacy
Financial knowledge	There are 13 questions in the CFPS database to evaluate family heads’ financial knowledge. (An example question is listed below: If the annual interest rate of your savings account is 3%, and the inflation rate is 5%, how many goods you can buy using your savings in this account after 1 year? 1. More than today 2. The same as today 3. Less than today 9. Don’t know.) If respondents clicked the right choice, 2 points would be counted, 1 point for the wrong choice, and 0 for the unknown choice. By adding up the total points, a scale variable ranging from 0 to 26 was generated and then recoded into four categories, i.e. [0, 4] codes 1, [5, 14] codes 2, [15, 20] codes 3, [20, 26] codes 4. This processing is to match the study by Salignac et al. (2019) as more as practicable. In the study by Salignac et al. (2022), the Indonesian database lacks the examination of financial knowledge and behavior
Financial confidence	“How can you evaluate your financial knowledge level, compared to the people of your age?”	After respondents finished questions relevant to objective financial knowledge, they need to report the subjective level of their knowledge in a five-point Likert form, which can be viewed as their confidence degree to match with the study by Salignac et al. (2019). We combined “way above the average” and “above the average” as a whole and coded it into 4 to represent “Strong confidence in financial knowledge”, others were not processed
Financial advice seeking	“I will collect product information, and compare various products as the consulting suggestion when I choose a financial investment.”	This is a five-point Likert question. Respondents need to report their behavior compared with the description. We combined “Somewhat applicable” and “Totally applicable” as a whole and coded them into 4 to represent “Often consult advice before investment choice”, others were not processed
Proactive actions	There are 6 questions in the CFPS database to evaluate family heads’ positive financial behaviors except for the question focusing on respondents’ “advice” behavior. (An example question is listed below: I manage my own financial revenues and expenditures, as well as those of my family. 1. Totally inapplicable 2. Somewhat inapplicable 3. Generally applicable 4. Somewhat applicable 5. Totally applicable.) If respondents have more applicable positive behaviors, their added-up points would be higher. Based on the sample distribution, we calculated the mean score of their total points, which was distributed in four categories, thus constituting the range of proactive actions
Social capital
Social networks	“In the past 12 months, how frequent was the contact between your family and non-resident relatives?” “In the past 12 months, how was the relationship between your family and neighbors?”	The social network is an important component of social capital in previous studies; existing research has also employed questions on family relationships and neighborhood relationships to measure social capital (Yang et al., 2021). We combined the values of two questions and transformed them into four categories based on the distribution
Social networks support	“In the past 12 months, in terms of the gift and money support, did your family have interactions with your relatives or friends’ family for these life events?”	In the CFPS database, this question matches with the meaning of support from social networks most. Although village trust is used to describe the support from social networks in the study by Salignac et al. (2022), we did not adopt this way because it is more like a subjective evaluation rather than objective support
Community & government support	“In the past 12 months, did your family receive any cash or non-cash donations from the community?” “In the past 12 months, did your family receive any of the following government subsidies?”	Following Salignac et al. (2022), we consider cash transfer/subsidy as an indicator; Also, charity donation and support are particularly asked in the CFPS database. Combining these two questions, we got a range of values that could be categorized into four types to differentiate whether and how much families receive subsidies

Appendix 2: Robustness Check Results of Scenario Analysis Using Different Financial Resilience Indexes^a

Scenario	Characteristics	Predicted financial resilience score (1–4)	95% confidence interval	Predicted financial resilience result
Benchmark	Male family head	2.87	2.83–2.92	Moderate financially resilient
	Married/cohabited	*2.87	*2.82–2.92
	35–49 years old	#2.80	#2.75–2.86
	Urban hukou	^2.37	^2.34–2.41
	Live in Eastern China
	Full-time employed
	High school education
	Income yearly ¥ 40,000–¥ 59,999
	No risky financial investment
	No probable serious mental illness
Cumulative mid-level risk factors	Female family head	2.48	2.38–2.58	Low financially resilient
	Not in the labor force	*/	*/
	Primary school education and below	#/	#/
	Income yearly ¥ 20,000–¥ 39,999	^/	^/
	Social rental house
or	Male family head	2.33	2.26–2.39
	Part-time/casual/odd jobs	*2.27	*2.21–2.33
	No education; Income yearly under ¥ 20,000	#2.32 ^2.19	#2.25–2.40 ^2.14–2.24
or	Male family head	2.28	2.02–2.55
	65+ years old	*/	*/
	Live in Western China	#/	#/
	Rural hukou	^/	^/
	Probable serious mental illness
or	Female family head	2.27 *2.24 #2.23 ^2.06	2.18–2.36 *2.15–2.33 #2.14–2.32 ^2.00–2.12
	Divorced/widowed
	Rural hukou; No education; Income yearly under ¥ 20,000
Cumulative high-level risk factors	Rural hukou	2.13	1.74–2.51	Financially vulnerable
	Unemployment	*2.14	*1.85–2.42
	Income yearly under ¥ 20,000	#2.14 ^2.09	#1.90–2.38 ^1.84–2.33
or	Poor health	2.03	1.09–2.96
	No education	*1.96	*0.72–3.21
	Unemployment, part-time/casual/odd jobs	#2.00	#0.85–3.16
	Rural hukou; Income yearly under ¥ 20,000	^/	^/
or	Market rental house	1.95	/
	Divorced/widowed	*1.87	*/
	No internet access	#1.91	#/
	Poor health, no education, rural hukou, unemployment, income yearly under ¥ 20,000	^1.87	^/
Cumulative protective factors	College education	3.35	/	High financially resilient
	Income yearly ¥ 100,000+	*3.31	*/
	Self-owned house; Has internet access; Has private car; Large book collection; Large amount donation; Has risky financial investment; Prefer moderate risk & yield	#3.21	#/
	Good health; No probable serious mental illness	^2.85	^2.85–2.85
	Family head is a male; 35–49 years old; Married/cohabited; Live in Eastern China; Urban hukou; Full-time employed
or	Self-employed enterprise or full-time employed	3.25	3.23–3.26
	High school education and above	*3.22	*3.20–3.24
	Income yearly ¥ 60,000+	#3.13	#3.12–3.15
	Free-occupied or self-owned house	^/	^/
	Has private car, risky investment
or	50+ years old; Married/cohabited;	3.39	3.17–3.60
	Not in the labor force; Income yearly ¥ 100,000+; Good health	*3.38	*3.16–3.61
	Self-owned house; Has private car; Has risky financial investment; Prefer moderate risk	#3.28 ^2.94	#3.05–3.51 ^/

1. ^aFour financial resilience indexes are presented here: “Four components” (the main index in the manuscript), “Three components” (excluded the component of “financial literacy”), “No credit” (excluded the item of “access to credits”), and “PCA” (conducted PCA method). Results of the financial resilience index (Three components) are marked with *, results of the financial resilience index (No credit) are marked with #, and results of the financial resilience index (PCA) are marked with ^. If a scenario could not generate the 95% confidence interval result, it is marked with “/”. Besides, the three means of the financial resilience index (Four components/Three components/No credit/PCA) are 2.80, 2.78, 2.72, and 2.40 respectively. Comparing these results could conclude that our results in the manuscript are robust