Digital Financial Inclusion and Household Economic Vulnerability: Evidence from China's Fintech Development

Abstract

As digital finance becomes increasingly embedded in everyday life, its dual impact on household well-being demands closer scrutiny. Through mobile banking, fintech platforms, and algorithm-driven credit systems, digital finance has expanded access to financial services for previously underserved populations. This study investigates how the adoption of digital financial tools-captured through digital finance usage-and the development of economic awareness influence household financial behaviour. The primary dataset is the China Household Finance Survey (CHFS), covering the 2021, 2022, and 2023 waves. While digital platforms have expanded access to financial services, they have also introduced new vulnerabilities, particularly by accelerating access to credit and altering consumption behaviour. Using a nationally representative dataset, we examine how variables such as technology access, financial literacy, and risk tolerance shape outcomes like market participation, consumption patterns, and financial stress. As household debt levels rise globally, understanding these dynamics is critical for ensuring that digital finance supports—not undermines—financial stability. The findings reveal that while digital finance fosters economic inclusion, it can also amplify financial fragility, especially among households with limited financial capability. These effects are highly context-dependent, underscoring the need for targeted digital literacy programs and responsible fintech regulation to ensure that digital finance serves as a bridge to prosperity—not a pathway to debt. The results underscore the importance of distinguishing between access and usage, and between short-term liquidity and long-term financial health. While digital finance holds promise for inclusive growth, its benefits are not automatic. They depend on the quality of platform design, the regulatory environment, and the financial capabilities of users.