Digital financial inclusion development, investment diversification, and household extreme portfolio risk

Most Chinese households are exposed to extreme portfolio risks; the findings show that digital financial inclusion significantly mitigates this phenomenon. Using a panel of nation-wide data from the China Household Finance Survey, we find digital financial inclusion significantly reduces the probability of households taking extreme portfolio risks by promoting diversification. It also plays a greater role among households with low levels of wealth and financial literacy, located in areas where traditional finance has been slow to develop. These findings suggest that Internet-based financial products are needed that are better suited to households with low levels of wealth and financial literacy.